Horizontal Mergers in the Presence of Vertical Relationships

Abstract

We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from costinefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

Vertical Bargaining and Retail Competition: What Drives Countervailing Power?

“…Finally, Cho () and Gosh et al . () investigated the effects of mergers or entry in a two‐tier Cournot oligopoly with a decentralised upstream marketplace.…”

“…Antelo and Bru (2006) analysed coalitions between upstream firms which contract with retailers over non-linear agreements. Finally, Cho (2014) and Gosh et al (2014) investigated the effects of mergers or entry in a two-tier Cournot oligopoly with a decentralised upstream marketplace.…”

When is upstream collusion profitable?

“…To analyze the magnitude of vertical and horizontal externalities, we need to explicitly specify the vertical relation. If upstream firms sell the input through a “market interface” (Inderst, ; Ghosh, Morita, and Wang, ), then the equilibrium input price mainly depends on upstream competition (given the input demand arising from downstream competition). For example, if upstream firms carry out Bertrand competition (with homogeneous input), then we have .…”

Vertical Bargaining and Retail Competition: What Drives Countervailing Power?

“…Antelo and Bru (2006) analysed coalitions between upstream firms which contract with retailers over non-linear agreements. Finally, Cho (2014) and Gosh, Morita and Wang (2014) investigated the e↵ects of mergers or entry in a two-tier Cournot oligopoly with a decentralized upstream marketplace. In order to study the e↵ects of a change in the number of upstream firms, m, on our equilibrium, we need to consider how this would impact both conduct parameters.…”