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Horizontal Mergers and Successive Oligopoly

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  • Steffen Ziss

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    Abstract

    This paper considers a successive oligopoly setting in which a set of upstream firms sell output non-exclusively to a group of downstream firms using a linear tariff. If the concavity of retail demand is constant then the profitability of horizontal merger at either the upstream or the downstream stage is shown to depend on the number of firms in the stage experiencing the merger and not on the number of firms in the other stage. Furthermore, the profitability of merger at either stage is the same as the profitability of merger amongst a set of vertically integrated firms in a setting in which all firms are vertically integrated. Finally, mergers at either stage are shown to reduce the sum of producer and consumer surplus. Moreover the negative effects of merger on surplus are unambiguously increased by increases in concentration in the merging stage and ambiguously affected by increases in concentration in the non-merging stage. Copyright Springer Science + Business Media, Inc. 2005

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Industry, Competition and Trade.

    Volume (Year): 5 (2005)
    Issue (Month): 2 (June)
    Pages: 99-114

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    Handle: RePEc:kap:jincot:v:5:y:2005:i:2:p:99-114

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    Web page: http://springerlink.metapress.com/link.asp?id=105724

    Related research

    Keywords: horizontal mergers; double-marginalization; successive oligopoly;

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    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
    2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    3. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
    4. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
    5. Cheung, Francis K., 1992. "Two remarks on the equilibrium analysis of horizontal merger," Economics Letters, Elsevier, vol. 40(1), pages 119-123, September.
    6. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June.
    7. Waterson, Michael, 1980. "Price-Cost Margins and Successive Market Power," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 135-50, February.
    8. Greenhut, M L & Ohta, H, 1976. "Related Market Conditions and Interindustrial Mergers," American Economic Review, American Economic Association, vol. 66(3), pages 267-77, June.
    9. Neil Wrigley, 2001. "The consolidation wave in U.S. food retailing: A European perspective," Agribusiness, John Wiley & Sons, Ltd., vol. 17(4), pages 489-513.
    10. Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Mergers In Oligopoly," Working Papers. Serie AD 1999-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    11. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-37, December.
    12. Ziss, Steffen, 2001. "Horizontal mergers and delegation," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 471-492, March.
    13. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
    15. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
    16. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
    17. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 133-164, 04.
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