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Downstream Mergers And Upstream Investment

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Author Info

  • Ramón Faulí-Oller

    ()
    (Universidad de Alicante)

  • Joel Sandonís

    ()
    (Universidad de Alicante)

  • Juana Santamaria-Garcia

    ()
    (Universidad de Alicante)

Registered author(s):

    Abstract

    In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2007-11.pdf
    File Function: Fisrt version / Primera version, 2007
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2007-11.

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    Length: 18 pages
    Date of creation: Apr 2007
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2007-11

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    Related research

    Keywords: downstream mergers; upstream innovation; competition;

    This paper has been announced in the following NEP Reports:

    References

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    1. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
    2. Morton I. Kamien & Israel Zang, 1987. "The Limits of Monopolization Through Acquisition," Discussion Papers 754, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
    4. repec:ebl:ecbull:v:12:y:2005:i:9:p:1-5 is not listed on IDEAS
    5. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    6. Morton I. Kamien & Israel Zang, 1988. "Competitively Cost Advantageous Mergers and Monopolization," Discussion Papers 799, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
    8. Farber, Stephen C, 1981. "Buyer Market Structure and R&D Effort: A Simultaneous Equations Model," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 336-45, August.
    9. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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