Andersen and the "Failing Firm"

Abstract

Although the "failing firm defence" is part and parcel of the merger analysis the European Commission has traditionally confined its application to exceptional cases. The integration of former Andersen accounting firms in the UK, France and Germany into the network of its competitors led the Commission to apply "failing firm" considerations to a professional service provider. While it did not explicitly apply the rigid traditional three-pronged test, its analysis demonstrated a pragmatic approach towards a "truncated" defence. This article looks at the application of the defence by the Commission and discusses the need to make adjustments to the established criteria when assessing a merger that involves a "failing" service provider. The appraisal of the practice of the Commission may even lead to the conclusion that rather than refining the defence, it may be more appropriate to focus on the substance of the causality test which has proved to be its core element. Arguably, the failing firm defence could even be considered as one application of the causality test. Hence, instead of trying to force the merger analysis into the Procrustes¨ bed of the defence, the Commission may centre its analysis on the causal connection between the concentration and the adverse effects on competition. It would avoid overstretching a concept and would help focus on the essence of the merger test.