DP7722 Vertical Merger, Collusion, and Disruptive Buyers

Author(s): Volker Nocke, Lucy White
Publication Date: March 2010
Keyword(s): antitrust, collusion, merger guidelines, vertical integration, vertical merger
JEL(s): L13, L40
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7722

In a repeated game setting of a vertically related industry, we study the collusive effects of vertical mergers. We show that any vertical merger facilitates upstream collusion, no matter how large (in terms of capacity or size of product portfolio) the integrated downstream buyer. But a vertical merger with a larger buyer helps more to facilitate upstream collusion than a similar merger with a smaller buyer. This formalizes the idea expressed in the U.S. and EU non-horizontal merger guidelines that some downstream buyers may be more "disruptive" of collusive schemes than others.