Can the Failing Firm Defense Rule Be Counterproductive?

31 Pages Posted: 4 Apr 2012

See all articles by Helder Vasconcelos

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: March 2012

Abstract

This paper studies the role of the failing firm defense (FFD) concept in merger control in a Cournot setting where: (i) endogenous mergers are motivated by prospective efficiency gains; and (ii) mergers must be submitted to an Antitrust Authority which might require partial divestiture for approval. It is shown that when the FFD concept is available in merger control, firms can strategically embark on a merger which makes other firms fail and then buy over the exiting outsider firm(s), leading to complete monopolization of the industry. This in turn implies that, in some circumstances, the consumers'-surplus-maximizing market structure cannot be achieved if the FFD concept is available, whereas it would be achieved if the FFD concept were ruled out.

Keywords: Efficiency gains, Endogenous mergers, Failing firm defense, Merger review

JEL Classification: D43, L13, L41, L51

Suggested Citation

Vasconcelos, Helder, Can the Failing Firm Defense Rule Be Counterproductive? (March 2012). CEPR Discussion Paper No. DP8878. Available at SSRN: https://ssrn.com/abstract=2034096

Helder Vasconcelos (Contact Author)

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

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