Upstream mergers, downstream mergers, and secret vertical contracts
AbstractIn 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 InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 55 (2001)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/622941
Other versions of this item:
- Fumagalli, C. & Motta, M., 1999. "Upstream Mergers, Downstream Mergers, and Secret Vertical Contracts," Economics Working Papers eco99/38, European University Institute.
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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