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Authors

Troy Paredes

Abstract

Under the failing firm doctrine, parties to a horizontal merger or acquisition can interpose the acquired company's financial failure as an absolute defense to an otherwise anticompetitive transaction that violates section 7 of the Clayton Act. Two rationales have been offered in support of the doctrine. First, the "private interest rationale" asserts that courts should protect private interests, such as workers, shareholders, and local communities, whose welfare depends upon the survival of the failing firm. Second, the "economic rationale" asserts that mergers and acquisitions involving failing firms do not threaten competition. In this Note, the author evaluates the private interest and economic rationales and concludes that they are inconsistent with section 7's goal of promoting competition. The author contends that competition should not be sacrificed to protect private interests and that transactions involving failing firms pose various anticompetitive risks.

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