IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v30y2009i3p183-191.html
   My bibliography  Save this article

Vertical merger: monopolization for downstream quasi-rents

Author

Listed:
  • Richard S. Higgins

    (Bates White, Washington, DC, USA)

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.

Suggested Citation

  • Richard S. Higgins, 2009. "Vertical merger: monopolization for downstream quasi-rents," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 183-191.
    • Handle: RePEc:wly:mgtdec:v:30:y:2009:i:3:p:183-191
    DOI: 10.1002/mde.1444
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1002/mde.1444
    File Function: Link to full text; subscription required
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.1444?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-795, December.
    2. Warren-Boulton, Frederick R, 1974. "Vertical Control with Variable Proportions," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 783-802, July/Aug..
    3. Westfield, Fred M, 1981. "Vertical Integration: Does Product Price Rise or Fall?," American Economic Review, American Economic Association, vol. 71(3), pages 334-346, June.
    4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    5. Vernon, John M & Graham, Daniel A, 1971. "Profitability of Monopolization by Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 924-925, July-Aug..
    6. Blair, Roger D & Kaserman, David L, 1978. "Vertical Integration, Tying, and Antitrust Policy," American Economic Review, American Economic Association, vol. 68(3), pages 397-402, June.
    7. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    8. Richard S. Higgins, 1999. "Competitive vertical foreclosure," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(4), pages 229-237.
    9. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 407-426, October.
    10. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1992. "Equilibrium Vertical Foreclosure: Reply," American Economic Review, American Economic Association, vol. 82(3), pages 698-703, June.
    11. McGee, John S & Bassett, Lowell R, 1976. "Vertical Integration Revisited," Journal of Law and Economics, University of Chicago Press, vol. 19(1), pages 17-38, April.
    12. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    13. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58(4), pages 347-347.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nobuyuki Takashima & Yasunori Ouchida, 2020. "Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1348, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jain, Amit, 2011. "Connaissance, ressources, concurrence et les frontières de l'entreprise," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/6403 edited by Thiétart, Raymond-Alain.
    2. Michael A. Salinger, 2021. "The New Vertical Merger Guidelines: Muddying the Waters," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 161-176, September.
    3. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    4. Jarrad Harford & Robert Schonlau & Jared Stanfield, 2019. "Trade Relationships, Indirect Economic Links, and Mergers," Management Science, INFORMS, vol. 65(7), pages 3085-3110, July.
    5. Choi, Jay Pil & Yi, Sang-Seung, 2016. "An equilibrium model of investment-reducing vertical integration," Research in Economics, Elsevier, vol. 70(4), pages 659-676.
    6. McCormick, Robert E. & Shughart II, William F. & Tollison, Robert D., 2006. "A theory of commodity bundling in final product markets: Professor Hirshleifer meets Professor Becker," International Review of Law and Economics, Elsevier, vol. 26(2), pages 162-179, June.
    7. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    8. Williamson, Oliver, 2009. "The Theory of the Firm as Governance Structure: From Choice to Contract," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 111-134, December.
    9. Jürgen Wandel, 2011. "Business groups and competition in post-Soviet transition economies: The case of Russian “agroholdings”," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 24(4), pages 403-450, December.
    10. Margaret E. Slade, 1998. "The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 204-222, October.
    11. Feenstra, Robert C. & Huang, Deng-Shing & Hamilton, Gary G., 2003. "A market-power based model of business groups," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 459-485, August.
    12. Marie-Laure Allain & Claire Chambolle & Patrick Rey, 2016. "Vertical Integration as a Source of Hold-up," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 1-25.
    13. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    14. Peter G. Klein & Michael E. Sykuta, 2010. "Editors’ Introduction," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 1, Edward Elgar Publishing.
    15. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
    16. Kim, Sukkoo, 1999. "The Rise of Multiunit Firms in U.S. Manufacturing," Explorations in Economic History, Elsevier, vol. 36(4), pages 360-386, October.
    17. Raghuram G. Rajan & Luigi Zingales, 1998. "The Governance of the New Enterprise," CRSP working papers 487, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    18. de Bragança, Gabriel Godofredo Fiuza & Daglish, Toby, 2017. "Investing in vertical integration: electricity retail market participation," Energy Economics, Elsevier, vol. 67(C), pages 355-365.
    19. Allain, Marie-Laure & Chambolle, Claire & Rey, Patrick & Teyssier, Sabrina, 2021. "Vertical integration as a source of hold-up: An experiment," European Economic Review, Elsevier, vol. 137(C).
    20. Kenneth Ayotte & Patrick Bolton, 2011. "Optimal Property Rights in Financial Contracting," The Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3401-3433.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:30:y:2009:i:3:p:183-191. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.