Data Supplement for The Bankruptcy System’s Contribution to Less Competitive Markets
Description
Laissez faire antitrust attitudes are giving way to a bipartisan appetite for more rigorous antitrust enforcement. Therefore, addressing the bankruptcy system’s role in creating more concentrated markets is particularly timely to reduce the need for ad-hoc antitrust litigation in the bankruptcy context. This prevents the uncertainties associated with such litigation from derailing the restructuring of viable yet distressed firms. This Article fulfills this objective by establishing an empirical relation between bankruptcy volume and market concentration and identifying the two drivers of this relation. The first driver is the debt pricing noise created by the bankruptcy system that disproportionately impacts smaller competitors. This noise is driven by unpredictable deviations from absolute priority as well as the cliff in creditor-debtor relationship created by the collision between the Trust Indenture Act and the Bankruptcy Code. The second driver is the conflict between restructuring and antitrust considerations. The Failing Company defense and its outgrowths are bankruptcy-driven escape hatches from antitrust scrutiny. Furthermore, antitrust enforcement has been neglected in the face of market stability and restructuring concerns. These have turned bankruptcy courts into inhospitable venues for antitrust claims and have allowed creditors to reap monopolistic profits. Two reforms address these issues. First, the underutilized Bankruptcy Appellate Panels should be overhauled to review bankruptcy cases more consistently. Second, the Trust Indenture Act should be amended to lessen its tension with the Bankruptcy Code by allowing bondholders to fully renegotiate bonds without entering bankruptcy as long as they do not move ahead in the bankruptcy “queue.”