The UK’s competition watchdog has stepped up its investigation into the proposed $4bn (£3.2bn) takeover of StubHub by rival tickets website Viagogo, piling more misery on a deal signed weeks before coronavirus brought live theatre, music and sport to a halt.

The Competition and Markets Authority said it feared a combination of two firms who share 80% of the ticket resale market would drive up prices and reduce choice for consumers.

It has given Viagogo five days to propose “clear-cut” measures to allay its concerns, or it will move to an in-depth phase two investigation, an escalation that could result in the deal being blocked.

The $4bn deal brought together two businesses that have faced outcry from MPs, campaigners and the public for their business practices, which include forging alliances with powerful ticket touts.

While both have avoided serious sanction in the UK, the CMA’s intervention adds to the pressure on two firms that have been rocked by the impact on live events of Covid-19.

Viagogo’s founder and boss, Eric Baker, said in February he believed the virus was isolated to Asia.

The spread of the pandemic since then has meant the takeover, partly funded by the Walton family behind Walmart, has been labelled the “worst deal ever” by Forbes magazine.

StubHub, which leads the US market, is thought to be in financial difficulty due to the pandemic and has faced criticism for withholding refunds from fans who have bought tickets for cancelled events, offering them credit instead.

The two firms are by far the leading players in ticket resale in the UK, the key factor in triggering the CMA investigation, but they have also fallen foul of the regulator before.

The CMA has previously threatened Viagogo with legal action for misleading consumers, dropping its pursuit after the firm agreed to overhaul to its website.

Viagogo has also faced criticism for profiteering from charity events such as a gig by comedian Peter Kay and charging huge mark-ups for tickets to see Michelle Obama, even when resale was not permitted.

The website went to war with Ed Sheeran, launching a lawsuit against his promotion company Kilimanjaro Live after the pop star barred entry to his gigs to fans who had bought through the company.

The firm filed a claim in Germany shortly before it was due to be grilled about its behaviour by MPs on the culture select committee and said the legal proceedings meant it could no longer attend the evidence session.

But the Guardian understands it has since dropped the claim and is now being pursued for legal costs by Kilimanjaro Live.

StubHub has also been accused of misleading ticket buyers, while the Guardian revealed earlier this year that the company was selling millions of pounds of tickets to football matches, even though resale of a football ticket is illegal in England.

However, the CMA’s investigation relates only to the extent to which the $4bn takeover would affect competition.

Viagogo said: “As we have throughout this process, we will continue to work diligently with the CMA during their review of the transaction.

“We remain committed to our belief that the combination of the two companies is a good move for customers worldwide.”

FanFair Alliance, a campaign group backed by music industry figures including the managers of PJ Harvey and Little Mix, said Viagogo’s record meant it should not be allowed to gain even more power over the ticket market.

“Viagogo remains a highly controversial business,” said spokesman Adam Webb.

“The company has widely flouted consumer protection law in the UK, and remains under investigation in numerous other countries.

“Such a company, that has created thousands of consumer victims, should not be allowed to monopolise for-profit ‘secondary ticketing’.

“That outcome would raise significant competition concerns in the UK and threaten to reverse hard-won reforms to prevent abuses in this market.”

If Baker’s purchase of StubHub goes ahead as planned, he will bring two businesses he founded under the same umbrella, creating a ticket resale giant.

The entrepreneur co-founded StubHub, before leaving the company amid a dispute with his business partner Jeff Fluhr, who later sold the company to eBay. Baker moved to London, where he set up Viagogo as a European competitor.