While it can be hard to evaluate a failing firm defense under the Merger Guidelines, the principles underlying the test are generally sound, even when the overall economy is going through very difficult times.

This paper considers cost changes affecting all firms in a constant-returns-to-scale Cournot oligopoly. Cost increases may paradoxically benefit some or even all firms. Whether a firm benefits or is harmed depends only on whether its market share exceeds a threshold level, on whether industry...