Pandemic, Economic Crisis, and the Failing Firm Defense

The profound economic shock caused by the COVID-19 pandemic is likely to cause the failure of a number of firms and possible consolidation in some sectors of the economy. Firms whose business model was faltering pre-crisis will not survive and this may generate M&A activity in relation to distressed assets. This poses a dilemma for competition authorities. These authors do not believe that this area of merger control policy requires a radical rethinking and, on the contrary, competition authorities need to remain alert to the effects of consolidation which may be caused or accelerated by the crisis. The decisional practice developed at EU level (and in the UK) in relation to failing and flailing firms described in this article provides sufficient flexibility. However, the articulation of a correct counterfactual against a background of the profound changes that will affect a number of sectors will require that competition authorities calibrate correctly their assessment of the competitive strength of each of the parties and the overall degree of competition.

By Antonio Bavasso & Jessica Bowring¹

I. INTRODUCTION

The profound economic shock caused by the COVID-19 pandemic is likely to cause the failure of a number of firms and possible consolidation in some sectors of the economy.  Firms whose business model was faltering pre-crisis will not survive and this may generate M&A activity in relation to distressed assets.  This poses a dilemma fo