Estonia: Failing Firm Defence: There Is a First Time for Everything

Abstract:

One of the most elusive concepts in the world of merger control has been the failing firm defence. One could even argue that this is a unicorn of merger control. One can read about it at the end of merger control sections in each competition law textbook, but most of the practitioners rarely if ever truly have the facts to rely on this defence.

Rarity and special nature of the failing firm defence arises from the fact that in extreme cases it would allow for something that merger control rules have arguably been drafted - to avoid merger to monopoly. Rationale for this is an understanding that regardless of if the authorities allow or block the merger, the competitive situation on the market would remain unchanged as number of competing firms is anyhow reduced due to the party to the merger exiting the market. The the same time, given the conditions involved the unicorn might actually turn out to be a poison chalice.

For a very long time in Estonian practice no successful examples of reliance on failing firm defence could be found. This regardless of multiple (partial) attempts to rely on said argument. Finally, an example from Estonian practice emerged in the spring of 2022 when the Estonian Competition Authority (ECA) approved a merger (subject to remedies) between A/S Dobeles Dzirnavnieks and AB Baltic Mill  (the Dolores/Baltic Mill case).