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Can the Failing Firm Defense Rule be Counterproductive?

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  • Vasconcelos, Helder

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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8878.

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Date of creation: Mar 2012
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Handle: RePEc:cpr:ceprdp:8878

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Keywords: Efficiency gains; Endogenous mergers; Failing firm defense; Merger review;

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