Can the failing firm defence rule be counterproductive?

Helder Vasconcelos

Oxford Economic Papers, 2013, vol. 65, issue 2, 567-593

Abstract: The present paper investigates the role of the failing firm defence (FFD) concept in the merger control process within a Cournot setting where (i) endogenous mergers are motivated by prospective efficiency gains and (ii) mergers must be submitted to an antitrust authority that might demand partial divestiture for approval. The findings show that when the FFD concept is one of the tools available for controlling the merger process, firms can strategically embark on a merger that makes other firms fail and then buy out the exiting outsider firm(s), thereby leading to the monopolization of the industry. This implies that in some circumstances, a consumer--surplus--maximizing market structure cannot be achieved if the FFD concept is available, whereas it can if the FFD concept is ruled out. Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.

Date: 2013
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Working Paper: Can the Failing Firm Defense Rule be Counterproductive? (2012)
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