The Failing Firm Defense versus Subsidies in Declining Markets
نویسندگان
چکیده
This paper studies the strategic and welfare effects of the “failing firm defense” in declining markets with differentiated products. All solvent firms prefer a clearing of the rescue merger to the failing firm exiting the market. The failing firm defense increases consumer surplus, since the benefit from maintained product variety outweighs the cost of higher prices that result from the merger. Importantly, we also find that, in terms of total welfare, temporary subsidies are superior to the failing firm defense.
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