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Double marginalization, market foreclosure, and vertical integration

Author

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  • Choné, Philippe
  • Linnemer, Laurent
  • Vergé, Thibaud

Abstract

Double marginalization is a robust phenomenon in procurement under asymmetric information when sophisticated contracts can be implemented. In this context, vertical integration causes merger-specific elimination of double marginalization but biases the make-or-buy decision against independent suppliers. If the buyer has full bargaining power over prices and quantities, a vertical merger benefits final consumers even when it results in the exclusion of efficient suppliers. If on the contrary the buyer's bargaining power is reduced after she has committed to deal exclusively with a limited set of suppliers, exclusion of efficient suppliers may harm final consumers.

Suggested Citation

  • Choné, Philippe & Linnemer, Laurent & Vergé, Thibaud, 2023. "Double marginalization, market foreclosure, and vertical integration," CEPR Discussion Papers 18239, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18239
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    More about this item

    Keywords

    Antitrust policy; Vertical merger;

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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