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Upstream mergers, downstream mergers, and secret vertical contracts

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  • Fumagalli, Chiara
  • Motta, Massimo

Abstract

In an industry characterised by secret vertical contracts, we consider a benchmark case where two vertical chains exist, with two upstream manufacturers selling to two downstream retailers, and show that the equilibrium prices are independent of whether upstream or downstream firms have all the bargaining power. We then analyse two alternative mergers, and show that a downstream merger (which gives the downstream monopolist all the bargaining power) is more welfare detrimental than an upstream merger (which gives the bargaining power to the upstream monopolist). We also show that downstream and upstream mergers have the same effects when contracts are observable.

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Bibliographic Info

Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 55 (2001)
Issue (Month): 3 (September)
Pages: 275-289

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Handle: RePEc:eee:reecon:v:55:y:2001:i:3:p:275-289

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Web page: http://www.elsevier.com/locate/inca/622941

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  1. Irmen, Andreas, 1997. "Note on duopolistic vertical restraints," European Economic Review, Elsevier, vol. 41(8), pages 1559-1567, August.
  2. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 133-164, 04.
  3. Irmen, Andreas, 1998. " Precommitment in Competing Vertical Chains," Journal of Economic Surveys, Wiley Blackwell, vol. 12(4), pages 333-59, September.
  4. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
  5. Rey, Patrick & Stiglitz, Joseph, 1988. "Vertical restraints and producers' competition," European Economic Review, Elsevier, vol. 32(2-3), pages 561-568, March.
  6. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  7. Lin, Y Joseph, 1988. "Oligopoly and Vertical Integration: Note," American Economic Review, American Economic Association, vol. 78(1), pages 251-54, March.
  8. Greg Shaffer, 1991. "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 120-135, Spring.
  9. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
  10. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
  11. Gal-Or, Esther, 1991. "Duopolistic vertical restraints," European Economic Review, Elsevier, vol. 35(6), pages 1237-1253, August.
  12. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Marie-Laure Allain & Saïd Souam, 2004. "Concentration horizontale et relations verticales," Working Papers hal-00242914, HAL.
  2. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics.

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