Blomgren-Hansen, Niels (Department of Economics, Copenhagen Business School)
Abstract
According to the Competition Act, a merger that impedes eective competition signi cantly, in particular by creating or strengthening a dominant postition, shall be prohibited. To decide whether this is the case the authorities need a quanti able model of the relationship between the variables that are directly aected by the merger and some measure of competition. In this paper we set up and calibrate a simple model of the interaction of the retail and the wholesale markets for high-end cosmetics in Denmark based on the Matas case. The model predicts that the acquisition of Matas - comprising roughly half of the market for high end cosmetics - may have a significant on retail prices and that the authorities had good reasons for making its approval conditioned on the removal of a number of contract-based barriers to entry. Analytically the main results are: (1) In a linear model with constant marginal costs the optimal wholesale prices are unexpected by the structure in the retail sector. (2) The ect on of buyer-power induced quantity dioscounts depends on the speci c design of the scheme: A relative discount on the list price the independent shops are charged increases the average retail price; A xed reduction relative to the pre-merger price reduces the average retail price). (3) Buyer-power induced retail price maintenance (RPM) increases the average retail price. RPM increases the competitiveness and pro ts of the merged shops if producers keep whole-sale prices unchanged. If, however, the producers adjust their wholesale prices, then RMP hurts merged and independent shops alike and benefits only the producers.
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Publisher Info
Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number
06-2007.
Length: 25 pages Date of creation: 01 Jan 2007 Date of revision: Handle: RePEc:hhs:cbsnow:2007_006
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