Vertical merger: monopolization for downstream quasi-rents
✍ Scribed by Richard S. Higgins
- Book ID
- 102500879
- Publisher
- John Wiley and Sons
- Year
- 2009
- Tongue
- English
- Weight
- 143 KB
- Volume
- 30
- Category
- Article
- ISSN
- 0143-6570
- DOI
- 10.1002/mde.1444
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✦ Synopsis
Abstract
This paper provides a welfare analysis of vertical merger between an input monopolist and downstream firms that compete perfectly in a homogeneous product market. The distinguishing feature of the present model is that the downstream firms face capacity constraints. As a result of downstream quasi‐rents, vertical merger—the extent of merger is gauged by the capacity share of the acquired downstream firm—may either raise or lower final output. An analytical criterion for distinguishing pro‐ and anti‐competitive mergers is derived, which relies entirely on pre‐merger market quantities and the capacity share of the downstream target. A common result is that vertical merger is output‐increasing even when unaffiliated downstream rivals are completely foreclosed. Copyright © 2008 John Wiley & Sons, Ltd.