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FAILING FIRM DEFENCE WITH ENTRY DETERRENCE
Author(s) -
Fedele Alessandro,
Togi Massimo
Publication year - 2010
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2009.00334.x
Subject(s) - competition (biology) , economics , clearance , cournot competition , deterrence theory , oligopoly , economic shortage , welfare , consumer welfare , free entry , industrial organization , barriers to entry , imperfect competition , monopolization , microeconomics , market structure , business , market economy , monopoly , ecology , linguistics , philosophy , physics , government (linguistics) , nuclear physics , biology , medicine , urology
Under the principle of the failing firm defence 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 anticompetitive alternative offer of purchase, (iii) absent the merger, the assets to be acquired would exit the market. We focus on potential anticompetitive effects of a myopic application of the requirement (iii) by studying consequences of a horizontal merger on entry in a Cournot oligopoly with a failing firm. Entry is deterred if the merger is cleared and, when the industry is highly concentrated, consumer welfare is higher under a prohibition because long‐run gains due to augmented competition exceed short‐run losses due to shortage of output.