A contract is considered under economic distress when the equality between contractual rights and obligations is substantially altered by endogenous or exogenous causes. In other words, economic distress arises when there is sustained difference between expected revenues and economic costs associated to the contract. To become a distress situation this difference has to be substantial and permanent rather than a temporary misalignment.
Two clarifications are worth noting. First, given the separation of financial distress and economic distress, in this (economic) analysis we have completely left out the company's financial structure.
The second relevant aspect is the dynamic, long-term nature of the economic distress problem. The fact that the above-explained condition of equilibrium is not met at a given moment may go without visible consequences for a relatively long time. If the imbalance is negative, only over time its effects will be evident, as it becomes impossible to attract capital to the sector. If the imbalance is positive, and there are monopolistic rents, there might not be evident effects on the remaining contract dimensions, however, in clear detriment to service users.
It is also important to note that given the nature of these services, it is impossible in practice to distinguish between monopolistic rents and legitimate efficiency gains of the company. The information asymmetry that characterizes every contractual relation of this kind renders it impossible to determine the effective nature of the disequilibrium. This creates an additional difficulty when analyzing concrete situations and accurately establishing whether it is necessary to apply certain corrective measures or not.