Can the Failing Firm Defense Rule be Counterproductive?

Helder Vasconcelos

No 8878, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 L51 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-bec and nep-com
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Journal Article: Can the failing firm defence rule be counterproductive? (2013)
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