Failing Firm Defense with Entry Deterrence
AbstractUnder the principle of the Failing Firm Defense (FFD) a merger that would be blocked due to its harmful effect on competition could be nevertheless allowed when (i) the acquired firm is actually failing, (ii) there is no less anti-competitive alternative offer of purchase, (iii) absent the merger, the assets to be acquired would exit the market. We focus on potential anti-competitive effects of a myopic application of the third requirement by studying consequences of a horizontal merger on entry in a Cournot oligopoly with a failing firm. If the merger is blocked entry occurs and, when the industry is highly concentrated, consumer welfare is bigger because gains due to augmented competition exceed losses due to shortage of output.
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Bibliographic InfoPaper provided by Università degli Studi di Milano-Bicocca, Dipartimento di Statistica in its series Working Papers with number 20061002.
Length: 20 pages
Date of creation: Oct 2006
Date of revision: Oct 2006
Failing Firm Defense; Entry Deterrence; Consumer Surplus;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-12 (All new papers)
- NEP-BEC-2006-11-12 (Business Economics)
- NEP-COM-2006-11-12 (Industrial Competition)
- NEP-IND-2006-11-12 (Industrial Organization)
- NEP-LAW-2006-11-12 (Law & Economics)
- NEP-MIC-2006-11-12 (Microeconomics)
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