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The Failing Firm Defense

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  • Lars Persson

Abstract

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. Copyright Blackwell Publishing Ltd. 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 53 (2005)
Issue (Month): 2 (06)
Pages: 175-201

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Handle: RePEc:bla:jindec:v:53:y:2005:i:2:p:175-201

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers.
  2. Patrice Bougette & Florent Venayre, 2008. "Contrôles a priori et a posteriori des concentrations : comment augmenter l'efficacité des politiques de concurrence," Revue d'économie industrielle, De Boeck Université, vol. 0(1), pages 9-40.
  3. Alessandro Fedele & Massimo Tognoni, 2010. "Failing Firm Defence With Entry Deterrence," Bulletin of Economic Research, Wiley Blackwell, vol. 62(4), pages 365-386, October.
  4. Patrice Bougette & Florent Venayre, 2008. "Contrôles a priori et a posteriori des concentrations : comment augmenter l'efficacité des politiques de concurrence ?," Working Papers 245031, Institut National de la Recherche Agronomique, France.
  5. Mason, Robin & Weeds, Helen, 2013. "Merger policy, entry, and entrepreneurship," European Economic Review, Elsevier, vol. 57(C), pages 23-38.
  6. Beschorner, Patrick Frank Ernst, 2008. "Do Consumers Benefit from Concentration in the New Economy? A Review of Google's Mergers, Acquisitions, and Arrangements," ZEW Discussion Papers 08-121, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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