Introduction

The European Commission (EC) declared in July 2001 the merger between General Electric (GE) and Honeywell ‘incompatible with the common market’ according to the Merger Regulation established in the Council Regulation (EEC) No. 4064/89. Article 2(3) of such regulation states that ‘a concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared incompatible with the common market’.

The EC formally based its decision to block the merger on two pillars:

• the strengthening of GE's dominant position in the markets for large commercial aircraft engines and for large regional aircraft engines, and the creation of a dominant position on the markets for corporate jet engines;

• the creation of a dominant position in the market for avionics and non-avionics aerospace components, where Honeywell enjoyed a leading position, and in the market for small marine gas turbines.

The main channels by which the merger would create and strengthen dominant positions consisted in horizontal overlaps and vertical and conglomerate integration. The combined market share of the merging parties, the influence and leverage of the financial arms of GE, GECAS and GE Capital, and the ability and incentive to bundle products are behind the conclusions of the EC.