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Vertical Integration and Competition Policy

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Author Info

  • Häckner, Jonas

    ()
    (Dept. of Economics, Stockholm University)

Abstract

Recently, 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 Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2001:1.

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Length: 18 pages
Date of creation: 24 Jan 2001
Date of revision:
Publication status: Published in Journal of Regulatory Economics, 2003, pages 213-222.
Handle: RePEc:hhs:sunrpe:2001_0001

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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
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Web page: http://www.ne.su.se/
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Related research

Keywords: Vertical Integration; Merger; Competition Policy;

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References

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  1. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
  2. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, vol. 88(5), pages 1232-48, December.
  3. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
  4. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Etro Federico, 2010. "Endogenous Market Structures and Contract Theory. Delegation, principal-agent contracts, screening, franchising and tying," Working Papers 2010_25, Department of Economics, University of Venice "Ca' Foscari".
  2. Ricardo Biscaia & Paula Sarmento, 2013. "Location Decisions in a Natural Resource Model of Cournot Competition," ERSA conference papers ersa13p1146, European Regional Science Association.
  3. Arijit Mukherjee & Piercarlo Zanchettin, 2012. "Vertical integration and product differentiation," Discussion Papers in Economics 12/17, Department of Economics, University of Leicester, revised Sep 2012.

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