The Auctioning of a Failing Firm
AbstractThis paper evaluates the welfare consequences of the failing firm doctrine in the EU and US merger laws. I combine an oligopoly model with an "endogenous valuations" auction model. Thereby, I take into account that, in an oligopoly, a firm's willingness to pay for the assets depends on the identity of the alternative buyer. The main result is that the doctrine leads to cost inefficiencies, due to a "least danger to competition" (LDC) condition, which favors small, and thus inefficient, firms. In particular, the LDC condition implies that small firms can preempt acquisitions that would lead to both higher producer surplus and higher consumer surplus.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 514.
Length: 32 pages
Date of creation: 23 Nov 1998
Date of revision:
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Competition policy; Failing firm defense; Auction;
Find related papers by JEL classification:
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- 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
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- Horn, Henrik & Persson, Lars, 1996.
"Endogenous Mergers in Concentrated Markets,"
CEPR Discussion Papers
1544, C.E.P.R. Discussion Papers.
- Persson, Lars, 2004.
"Predation and mergers: Is merger law counterproductive?,"
European Economic Review,
Elsevier, vol. 48(2), pages 239-258, April.
- Persson, Lars, 2001. "Predation and Mergers: Is Merger Law Counterproductive?," CEPR Discussion Papers 2734, C.E.P.R. Discussion Papers.
- Persson, Lars, 1999. "Predation and Mergers: Is Merger Law Counterproductive?," Working Paper Series 516, Research Institute of Industrial Economics.
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