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Anticompetitive Vertical Merger Waves
Author(s) -
Hombert Johan,
Pouyet Jérôme,
Schutz Nicolas
Publication year - 2019
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12204
Subject(s) - upstream (networking) , downstream (manufacturing) , vertical integration , industrial organization , business , foreclosure , product differentiation , product (mathematics) , upstream and downstream (dna) , monotonic function , microeconomics , economics , telecommunications , mathematics , marketing , computer science , finance , geometry , cournot competition , mathematical analysis
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.