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Upstream Mergers, Downstream Mergers, and Secret Vertical Contracts

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Author Info
Fumagalli, C.
Motta, M.

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Abstract

In an industry characterised by secret vertical contracts, we consider a benchmark case where two vertical chains exist, with two upstream manufacturers selling to two downstream retailers, and show that the equilibrium prices are independent of whether upstream or downstream firms have all the bargaining power. We then analyse two alternative mergers, and show that a downstream merger (which gives the downstream monopolist all the bargaining power) is more welfare detrimental than an upstream merger (which gives the bargaining power to the upstream monopolist). We also show that downstream and upstream mergers have the same effects when contracts are observable.

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Publisher Info
Paper provided by European University Institute in its series Economics Working Papers with number eco99/38.

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Length: 24 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:eui:euiwps:eco99/38

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Related research
Keywords: MERGERS ; VERTICAL INTEGRATION ; MARKET STRUCTURE;

Other versions of this item:

Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marie-Laure Allain & Saïd Souam, 2004. "Concentration horizontale et relations verticales," Working Papers hal-00242914_v1, HAL. [Downloadable!]
    Other versions:
  2. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics. [Downloadable!]
  3. Chrysovalantou MILLIOU, 2001. "Vertical Integration and R&D Spillovers: Is There a Need for 'Firewalls'?," Economics Working Papers ECO2001/17, European University Institute. [Downloadable!]
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This page was last updated on 2009-12-11.


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