Failing Firms and Declining Industries

This chapter provides an economic perspective on merger policy for failing firms and declining industries. It examines the evolution of the failing firm defense and the underlying principles of the defense, including financial condition, exit of assets due to the inability to reorganize, and absence of less anticompetitive purchasers. The economic rationale for the defense is examined, with particular reference to efficiency and competitive implications of the failing firm defense; the defense is also compared to efficiency defenses. The chapter also discusses how the principles underlying the treatment of failing firms might apply to firms in declining industries