Failing firm defence : A new theory ?

This set of three papers discuss the failing firm defence. The first paper outlines the evidential foundations for considering a failing firm counterfactual, using three case studies to illustrate the evidence which can be used and the analysis which can be carried out to inform the judgments made by the UK’s second phase authority, the Competition Commission. The second paper discuss whether the logic of the failing firm defence has implications for the correct counterfactual that should be used more generally in merger analysis. The Third paper underlines that the recent financial crisis has triggered a resurgence of interest in the Failing Firm Defence, with more firms finding themselves in financial difficulty and looking to merge with financially healthier partners. However, while the notion of a Failing Firm Defence is conceptually simple, in practice the criteria that must be satisfied are both strict and strictly applied. This article examines those criteria, and their application from and international perspective.

ON THE EVIDENCE USED TO EVALUATE FAILING FIRM COUNTERFACTUALS Peter DAVIS* Deputy Chairman, UK Competition Commission Adam COOPER* Deputy Director of Financial Accounting, UK Competition Commission I. Introduction 1. In many jurisdictions, including the UK and US, competition authorities wish to evaluate whether a merger leads to a substantial lessening of competition (SLC) or something similar in substance (e.g., the EU's SIEC test.) Doing so involves comparing a world “with” a merger to one “without” a merger. While most merger analysis involves the evaluation of anticipated mergers, the term ‘factual' has become associated with the world “with” a merger and the term “counterfactual” associated with the world “without” the merger. [1] For example, merging parties may argue that a target

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  • United Kingdom’s Competition Authority (CMA) (London)
  • AlixPartners (Chicago)
  • United Kingdom’s Competition Authority (CMA) (London)
  • The Brattle Group (London)
  • OECD - Competition Division (Paris)


Adam Cooper, Pablo Florian, Mike Walker, Peter Davis, Antonio Capobianco, Failing firm defence : A new theory ?, mai 2010, Concurrences N° 2-2010, Art. N° 30990, pp. 12-22

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