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Can the failing firm defence rule be counterproductive?

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  • Helder Vasconcelos

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.

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  • Helder Vasconcelos, 2013. "Can the failing firm defence rule be counterproductive?," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 567-593, April.
  • Handle: RePEc:oup:oxecpp:v:65:y:2013:i:2:p:567-593
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    File URL: http://hdl.handle.net/10.1093/oep/gps034
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    1. Bernard Franck & Nicolas Le Pape, 2020. "The limited liability effect: Implications for anticompetitive horizontal mergers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 2082-2102, December.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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