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Waterbed Effects and Buyer Mergers

Author

Listed:
  • Adrian Majumdar

    (Centre for Competition Policy, University of East Anglia and RBB Economics)

Abstract

This paper demonstrates how a profitable, downstream merger can lower the merged entity's input price while raising that of its rivals, leading to an adverse effect on final consumers. This novel 'waterbed' result is surprising and very different to the unilateral and co-ordinated effects usually considered in the analysis of horizontal mergers. When demand is linear, all mergers involving a powerful buyer harm overall welfare even though the merger leads to marginal cost reductions that substantially increase output by the merged entity.

Suggested Citation

  • Adrian Majumdar, 2005. "Waterbed Effects and Buyer Mergers," Working Papers 05-7, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp05-07
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP05-7.pdf
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    More about this item

    Keywords

    Mergers; buyer power; raising rivals' costs;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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