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The Welfare Effects Of Upstream Mergers In The Presence Of Downstream Entry Barriers

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  • Manel Antelo
  • Lluís Bru

Abstract

We examine the incentives for upstream firms to consolidate horizontally and the impact of this process on industry performance, when there are downstream entry barriers and firms negotiate bilaterally. In the short run, consumers are not worse off with upstream mergers, since consolidation only results in a redistribution of industry rents. In the long run, consumers are better off after upstream mergers, since they induce more entry into that segment. When social welfare is evaluated, a limit on upstream consolidation may prevent excessive entry; but upstream entry can be sometimes insufficient, if the retailers' intrinsic bargaining power is excessive. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Manel Antelo & Lluís Bru, 2006. "The Welfare Effects Of Upstream Mergers In The Presence Of Downstream Entry Barriers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1269-1294, November.
    • Handle: RePEc:ier:iecrev:v:47:y:2006:i:4:p:1269-1294
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    Cited by:

    1. Marco de Pinto & Lazlo Goerke & Alberto Palermo, 2023. "Informational Rents and the Excessive Entry Theorem: The Case of Hidden Action," IAAEU Discussion Papers 202301, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. Catherine C. Fontenay & Joshua S. Gans, 2014. "Bilateral Bargaining with Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 756-788, December.
    3. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
    4. Manel Antelo & Lluís Bru, 2018. "Option Contracts in a Vertical Industry," Manchester School, University of Manchester, vol. 86(4), pages 533-557, July.
    5. Marco de Pinto & Laszlo Goerke & Alberto Palermo, 2024. "Business Stealing + Economic Rent = Insufficient Entry? An Integrative Framework," IAAEU Discussion Papers 202402, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    6. Reisinger, Markus & Schnitzer, Monika, 2008. "A Model of Vertical Oligopolistic Competition," Discussion Papers in Economics 3189, University of Munich, Department of Economics.
    7. Dobson, Paul W. & Waterson, Michael, 2007. "The competition effects of industry-wide vertical price fixing in bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 935-962, October.
    8. Marco de Pinto & Laszlo Goerke & Alberto Palermo, 2024. "Informational rents and the excessive entry theorem: The case of hidden action," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(2), pages 237-252, May.

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