Downstream Merger with Oligopolistic Input Suppliers

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Downstream Merger with Oligopolistic Input Suppliers

Author Info

Lommerud, Kjell Erik
Straume , Odd Rune
Sorgard, Lars

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Abstract

We examine how a downstream merger affects input prices and, in turn, the profitability of a such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 733.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_733

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Find related papers by JEL classification:
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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Straume, Odd Rune, 2002. "Union collusion and intra-industry trade," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 631-652, May. [Downloadable!] (restricted)
Other versions:
- Straume, O.R., 1999. "Union Collusion and Intra-Industry Trade," Norway; Department of Economics, University of Bergen 1399, Department of Economics, University of Bergen.
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. [Downloadable!] (restricted)
Other versions:
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Other versions:
- Lommerud, K.E. & Sorgard, L., 1997. "Merger and Product Range Rivalery," Norway; Department of Economics, University of Bergen 165, Department of Economics, University of Bergen.
Lommerud, K.E. & Straume, O.R. & Sorgard, L., 2000. "Merger Profitability in Unionized Oligopoly," Papers 9/00, Norwegian School of Economics and Business Administration-.
Other versions:
- Lommerud, K.E. & Straume, O.R. & Sorgard, L., 2000. "Merger Profitability in Unionized Oligopoly," Norway; Department of Economics, University of Bergen 1000, Department of Economics, University of Bergen.
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Other versions:
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Other versions:
- Jagadeesh Gokhale & Erica L. Groshen & David Neumark, 1993. "Do Hostile Takeovers Reduce Extramarginal Wage Payments?," NBER Working Papers 4346, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
- Steffen Huck & Kai Konrad & Wieland Mueller, 2001. "Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information, and Market Structure," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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Other versions:
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- Farrell, J. & Shapiro, C., 1989. "Horizontal Mergers: An Equilibrium Analysis," Papers e-89-3, Stanford - Hoover Institution.
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