The conditions for a failing firm defence (Section VIII).
12. In order to assess the foreseeable impact (12) of a merger on the relevant markets, the Commission analyses its possible anti-competitive effects and the relevant countervailing factors such as buyer power, the extent of entry barriers and possible efficiencies put forward by the parties. In exceptional circumstances, the Commission considers whether the conditions for a failing firm defence are met.
The Failing Firm Defence: Merger Policy and Entry
This paper considers the 'failing firm defence', the principle found in most antitrust jurisdictions that a merger which would otherwise be blocked due to its adverse effect on competition might be permitted when the firm to be acquired is a failing firm and an alternative, less detrimental merger is unavailable. The conditions governing the application of this principle are strict and it has been successfully used in just a handful of cases. The paper considers the failing firm defence in a dynamic setting with uncertainty. In this context a firm entering a market also considers its ease of exit, foreseeing that it may later wish to leave should market conditions deteriorate. The paper argues that by facilitating exit in times of financial distress, the failing firm defence may encourage entry sufficiently that welfare is increased overall. Conditions under which greater leniency is welfare-improving are examined and implications for policy-makers are drawn from the analysis.
