DP13671 Anticompetitive Vertical Merger Waves
|Author(s):||Johan Hombert, Jérôme Pouyet, Nicolas Schutz|
|Publication Date:||April 2019|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13671|
We develop a model of vertical merger waves and use it to study the optimal merger policy. As a merger wave can result in partial foreclosure, it can be optimal to ban a vertical merger that eliminates the last unintegrated upstream firm. Such a merger is more likely to worsen market performance when the number of downstream firms is large relative to the number of upstream firms, and when upstream contracts are non-discriminatory, linear, and public. On the other hand, the optimal merger policy can be non-monotonic in the strength of synergies or in the degree of downstream product differentiation.