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Vertical merger: monopolization for downstream quasi-rents

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Author Info
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.

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File URL: http://hdl.handle.net/10.1002/mde.1444
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 3 ()
Pages: 183-191
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:wly:mgtdec:v:30:y:2009:i:3:p:183-191

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Richard S. Higgins, 1999. "Competitive vertical foreclosure," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(4), pages 229-237.
  2. 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 924-25, July-Aug.. [Downloadable!] (restricted)
  3. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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  5. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
  6. Michael H. Riordan, 2005. "Competitive effects of vertical integration," Discussion Papers 0506-11, Columbia University, Department of Economics. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
  8. McGee, John S & Bassett, Lowell R, 1976. "Vertical Integration Revisited," Journal of Law & Economics, University of Chicago Press, vol. 19(1), pages 17-38, April.
  9. 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.. [Downloadable!] (restricted)
  10. Westfield, Fred M, 1981. "Vertical Integration: Does Product Price Rise or Fall?," American Economic Review, American Economic Association, vol. 71(3), pages 334-46, June. [Downloadable!] (restricted)
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This page was last updated on 2009-11-29.

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