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Simulating mergers in a vertical supply chain with bargaining
Author(s) -
Sheu Gloria,
Taragin Charles
Publication year - 2021
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12385
Subject(s) - downstream (manufacturing) , bargaining problem , microeconomics , economics , anthem , upstream (networking) , supply chain , harm , government (linguistics) , industrial organization , business , computer science , operations management , telecommunications , marketing , linguistics , physics , philosophy , acoustics , political science , law
Abstract We model a two‐level supply chain where Nash bargaining occurs upstream and firms compete in a logit setting downstream, either via Bertrand price setting or an auction. The parameters can be calibrated with a discrete set of data on prices, margins, and market shares, facilitating use by antitrust practitioners. We perform numerical simulations to identify cases where modelling the full vertical structure is important and where harm is likely. We also examine the thwarted Anthem/Cigna merger and show how the model weighs the various arguments made by the government and the defendants.