Mergers can be horizontal - bringing together firms that produce the same product within the same market – or vertical – bringing together firms in potential customer-supplier relationships.
Analysing Horizontal Mergers
By definition, horizontal mergers reduce the number of actual competitors in the market. Horizontal mergers may also produce cost savings  and other benefits. If these benefits outweigh any reduction in competition, then the merger should be allowed to proceed.
Competition authorities commonly take a two-stage approach to analysing horizontal mergers (see Figure 2.9).
Figure 2.9: Two Stage Process for Analysing Mergers
The first stage uses measurable thresholds or “safe harbors” to determine whether a merger is likely to raise serious competition concerns. If a merger falls within the specified threshold then it is considered to be “safe”, and may proceed without further investigation.
Like the USA, the EU calculates the Herfindahl-Hirschmann Index. While the absolute level of the HHI can give an initial indication of the competitive pressure in the market post-merger, the EU looks at the change in the HHI as a useful proxy for the change in concentration directly brought about by the merger.
The purpose of these thresholds is to focus resources on investigating those transactions that are most likely to raise serious competition concerns. Those mergers that do not fall within specified safe harbors are investigated in depth.
The EU Commission  assesses "horizontal mergers" where the undertakings concerned are actual or potential competitors on the same relevant market. See KPNQWest/Ebone/GTS Horizontal Merger on one market assessment. The Commission's assessment of mergers normally entails:
§ definition of the relevant product and geographic markets;
§ competitive assessment of the merger.
The EU Commission also takes account of a number of factors (such as the possibilities for customers of switching supplier or the possibilities for competitors to respond to the merger) which may influence the likelihood that a merger will have significant anticompetitive effects.
Box 2.11: UK: Orange and T-Mobile Merger
The merger of Orange and T-Mobile (UK subsidiaries of France Télécom and Deutsche Telekom) into Everything Everywhere, cleared on 1 March 2010, reduced the number of network operators from five to four. The UK Office of Fair Trading (OFT) had two concerns about the impact on competition.
First, the smallest remaining mobile network operator, 3UK, depended upon T-Mobile for 3G (radio access network) infrastructure sharing and on Orange for 2G national (voice) roaming. The remedy was a revised commercial agreement between T-Mobile, Orange and 3UK on post-merger infrastructure sharing roaming including a fast-track dispute resolution process.
Second, the parties' combined contiguous spectrum could result in the new entity being the only mobile network operator in the UK able to offer next-generation mobile data services through Long Term Evolution (LTE) technology at the best possible speeds in the medium term. The remedy was a commitment that the merged entity would divest a quarter of their combined spectrum in the 1800 MHz band.
European Commission (staff analysis), Of spectrum and radio access networks: the T-Mobile/Orange joint venture in the UK,Competition Policy Newsletter, No. 2, 2010 and European Commission: T-MOBILE/ ORANGE, March 2010
The EU Commission also undertakes to take account of efficiency or profitability criteria that undertaking might claim in order to mitigate any adverse impact on competition; in such cases, the undertakings would, of course, have to show that the efficiency was indeed attributable to the merger and would be beneficial for consumers.
If a merger is found to generate benefits that do not outweigh the damage to competition, then in some jurisdictions regulatory authorities may impose ex ante obligations on a merged firm, where the merger would otherwise be anti-competitive. In both the United States and Europe, National Regulatory Authorities may impose conditions on a merger that would otherwise be anti-competitive.
Box 2.12: Austria: T-Mobile and tele.ring merger
Conditions were imposed for the horizontal merger approved by the European Commission in April 2006. The Austrian subsidiary of T-Mobile (part of the Deutsche Telekom group) merged with a small competitor, tele.ring (controlled by US Western Wireless Corporation).
Some firms have more of an influence on the competitive process than their market shares would suggest. Before the merger, tele.ring exerted competitive pressure on the two largest Austrian operators, Mobilkom and T-Mobile Austria. The merger could have changed competitive dynamics significantly.
It seemed that no other operator could take over the role that tele.ring played. H3G had offered the next most attractive prices and in 2005 nearly half the customers who ported their numbers away from tele.ring went to H3G.But H3G was even smaller, had a network with only 50 percent population coverage and a roaming agreement with Mobilkom which raised its variable costs reducing its potential to be a vigorous price competitor.
The Commission approved the merger on the basis of T-Mobile’s legally binding commitments to H3G to sell it UMTS frequencies and mobile telephony sites (including all necessary technical equipment). According to H3G, these acquisitions would allow it to achieve complete network coverage of the population quickly. Buildings its own network nationally would also eliminate H3G’s dependence on the national roaming agreement with Mobilkom, reduce its variable per minute costs considerably and allow H3G to achieve much larger economies of scale. And the extended network and enhanced capacity would provide the incentive to price aggressively to “fill” the network.
Source: European Commission (staff analysis), T-Mobile Austria/telering: Remedying the loss of a maverick, Competition Policy Bulletin, No. 2, Summer 2006
Analysing Vertical Mergers
Vertical mergers involve complementary services while horizontal mergers involve substitute services. Vertical mergers are generally considered beneficial where they can:
§ Reduce transaction costs by improving coordination between the services,
§ Improve efficiency through more integrated production, and
§ Eliminate “double markups” .
Vertical mergers are more likely to increase efficiency than horizontal mergers but may raise competition concerns in limited sets of circumstances. Competition authorities in the Unites States typically pay attention to three issues (see Figure 2.10). Could the merged firm:
Raise the costs of its retail rivals? For example, suppose a retail firm merges with the supplier of a wholesale input. By removing a source of supply from the wholesale stage of the market, the retailer is able to increase the price of the input to its competitors (but not to itself). If it can, the remedy is a requirement that the wholesale resource be made available at non-discriminatory prices.
Misuse competitively sensitive information gathered about rivals when selling them the wholesale resource? If it can, the remedy is to implement rules and procedures to prohibit information-sharing between the firm’s retail and wholesale operations.
Foreclose retail competitors from the market by exercising market power at the wholesale stage of the market? The merged firm may withhold supply of the essential facility to its retail competitors, preventing them from competing. If it can, the remedy is to require the merged firm to provide equal access to the wholesale resource to its non-integrated retail-stage competitors.
Figure 2.10: Analysing Vertical Mergers
See the conditions imposed to allow the Telia/Sonera Merger which raised both horizontal and vertical merger concerns.
Box 2.13: EU and Vertical Mergers
In many merger cases in mobile telecommunications, the issue at stake could be that of horizontal overlaps in activities of the parties in their respective markets (reduced competition) or vertical relationships between the markets for wholesale international roaming and the markets for fixed and/or mobile telecommunications in the countries where the parties to the transaction operate.
In several cases of this type the Commission found that the transactions would not harm competition and the mergers were cleared without commitments. Examples include France Télécom/Mid Europa Partners/One (2007) and Deutsche Telekom/OTE (2008).
European Commission: Deutsche Telekom/OTE, October 2008 and
European Commissin: France Telecom/Mid Europa Partners/ONE, September 2007 with a third case in 2005 mentioned at http://ec.europa.eu/competition/sectors/telecommunications/mobile_en.html)
There is no difference between mergers and acquisitions in terms of regulation.
 Cost savings from horizontal mergers may come from combining complementary assets, eliminating duplication of activities and achieving scale economies.
 From EU Guidelines on the assessment of horizontal mergers
 If both organisations have market power, successive (double) mark ups will increase the final price and lower output. The stronger their market power in their respective markets, the bigger the mark ups are and the greater the potential to lower them through a vertical merger. See the US contribution to the OECD Roundtable on Vertical Mergers, in February 2007 http://www.ftc.gov/bc/international/docs/07RoundtableonVerticalMergers.pdf