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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)
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
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File Function: Fisrt version / Primera version, 2007
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Publisher 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;

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References listed on IDEAS
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  1. 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.
  2. 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. [Downloadable!] (restricted)
  3. Kamien, Morton I. & Zang, Israel, 1991. "Competitively cost advantageous mergers and monopolization," Games and Economic Behavior, Elsevier, vol. 3(3), pages 323-338, August. [Downloadable!] (restricted)
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  4. Stephane Caprice, 2005. "Incentive to encourage downstream competition under bilateral oligopoly," Economics Bulletin, Economics Bulletin, vol. 12(9), pages 1-5. [Downloadable!]
  5. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
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  6. 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. [Downloadable!] (restricted)
  7. Kamien, Morton I & Zang, Israel, 1990. "The Limits of Monopolization through Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 465-99, May. [Downloadable!] (restricted)
    Other versions:
  8. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March. [Downloadable!] (restricted)
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