Title
Merger incentives and the failing firm defense Merger incentives and the failing firm defense
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Oxford ,
Subject
Economics
Source (journal)
The journal of industrial economics. - Oxford
Volume/pages
62(2014) :3 , p. 436-466
ISSN
0022-1821
ISI
000341777100003
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
The merger incentives between profitable firms differ fundamentally from the incentives of a profitable firm to merge with a failing firm. We investigate these incentives under different modes of price competition and Cournot behavior. Our main finding is that firms strictly prefer exit of the failing firm to acquisition. This result may imply that other than strategic reasons, like economies of scale, must be looked for to understand why firms make use of the failing firm defense. However, when products are sufficiently heterogenous, we find that (i) the failing firm defense can be welfare enhancing and (ii) a government bail-out increases total welfare when the number of firms is sufficiently low.
E-info
https://repository.uantwerpen.be/docman/iruaauth/98f4b4/e798625.pdf
Full text (open access)
https://repository.uantwerpen.be/docman/irua/98c35b/8720.pdf
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