The Failing Firm Defence: Merger Policy and Entry

Robin Mason and Helen Weeds

No 148, Royal Economic Society Annual Conference 2003 from Royal Economic Society

Abstract: This paper considers the `failing firm defence'. Under this principle, found in most antitrust jurisdictions, a merger that would otherwise be blocked due to its adverse effect on competition is permitted when the firm to be acquired is a failing firm, and an alternative, less detrimental merger is unavailable. Competition authorities have shown considerable reluctance to accept the failing firm defence, and it has been successfully used in just a handful of cases. The paper considers the defence in a dynamic setting with uncertainty. A firm entering a market also considers its ease of exit, foreseeing that it may later wish to leave should market conditions deteriorate. By facilitating exit in times of financial distress, the failing firm defence may encourage entry sufficiently that welfare is increased overall. This view of the defence has several implications relevant to a number of merger cases. The conditions under which greater leniency is welfare-improving are examined.

Keywords: merger policy; failing firm defence; entry; exit (search for similar items in EconPapers)
JEL-codes: D81 K21 L41 (search for similar items in EconPapers)
Date: 2003-06-04
New Economics Papers: this item is included in nep-ent and nep-law
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Citations: View citations in EconPapers (5)

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Working Paper: The Failing Firm Defence: Merger Policy and Entry (2002)
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