Vertical Integration and Competition Policy
AbstractRecently, the European Commission has decided to implement a simplified procedure in the context of vertical integration. If the combined market shares of the merging firms are less than 25 percent, upstream and downstream, the Commission will consider the merger harmless. The purpose of this study is to examine the welfare aspects of vertical integration in a simple model and investigate the accuracy of the proposed rule of thumb. The welfare implications of vertical integration turn out to depend on relative market shares and the degree of product differentiation. Basically, a merger is harmless from a social point of view when the upstream market is relatively concentrated compared to the downstream market and/or if products are sufficiently close substitutes. We therefore suggest an alternative screening rule: If the upstream market is significantly less concentrated than the downstream market, or if products obviously are close substitutes, mergers may be approved at an early stage of the screening process. Otherwise the merger may be detrimental to welfare and the competition authority should evaluate it more carefully.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2001:1.
Length: 18 pages
Date of creation: 24 Jan 2001
Date of revision:
Publication status: Published in Journal of Regulatory Economics, 2003, pages 213-222.
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
Web page: http://www.ne.su.se/
More information through EDIRC
Vertical Integration; Merger; Competition Policy;
Other versions of this item:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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.:
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