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Upstream Horizontal Mergers and Efficiency Gains

Author

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  • Chrysovalantou Milliou
  • Apostolis Pavlou

Abstract

We study upstream horizontal mergers and their potential efficiency gains. We show that an upstream horizontal merger can give rise to two efficiency-enhancing effects when firms trade through two-part tariffs. It increases R&D investments and decreases wholesale prices when downstream competition is not too strong. Examining whether the merger’s potential efficiency gains can overcome its anti-competitive effects in terms of welfare, we show that when firms merge usually both of the above mentioned efficiencies are realized and they are passed on to consumers. This holds to a lesser extend when firms trade through linear contracts.

Suggested Citation

  • Chrysovalantou Milliou & Apostolis Pavlou, 2009. "Upstream Horizontal Mergers and Efficiency Gains," CESifo Working Paper Series 2748, CESifo.
  • Handle: RePEc:ces:ceswps:_2748
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    References listed on IDEAS

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    Cited by:

    1. Yu‐Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(3), pages 290-317, July.

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    More about this item

    Keywords

    horizontal mergers; vertical relations; efficiency gains; two-part tariffs; merger policy;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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