THE FAILING FIRM DEFENSE*
Journal of Industrial Economics, 2005, vol. 53, issue 2, 175-201
This paper evaluates the welfare consequences of the failing firm defense (FFD) in the EU and U.S. merger laws. To this end, I combine an oligopoly model with an ‘endogenous valuations’ auction model. The FFD is shown to work reasonably well for consumers unless small firms are too small. The FFD may, however, lead to total surplus losses, due to a ‘least danger to competition’ (LDC) condition which favors small, and thus possibly inefficient, firms. It is also shown that, in a multi‐firm setting, the FFD increases the incentive for predation only when the assets are industry‐specific.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jindec:v:53:y:2005:i:2:p:175-201
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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven
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