Capabilities Analysis in Competition Policy: Evidence from Merger Remedies

The business and strategic management literature shows that dynamic competition depends on firm-level capabilities. Yet, firm-level capabilities do not feature in the variables used in the economic evaluation of mergers. For that reason, integrating capabilities analysis in merger policy is often perceived as a challenge. This paper questions that perception. We examine whether competition agencies already conduct capabilities analyses in merger enforcement, focusing on purchaser approval decisions following divestiture orders. Using a unique dataset of 109 such decisions adopted by the European Commission between 2014 and 2025, we find that the Commission conducts some capability analysis in two-thirds of cases, with thorough examinations occurring in one-third. The intensity of this analysis varies substantially by industry: it is high in pharmaceuticals and chemicals but low or absent in basic metals, electrical equipment, and retail. When capabilities are analyzed, the Commission focuses overwhelmingly on post-merger integration capabilities, with other capabilities like R&D and scaling receiving comparatively less attention. Furthermore, the Commission rarely rejects proposed purchasers on capability grounds. The results hold across the entire relevant period. We discuss the implications for merger remedy design and dynamic competition policy.