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Mergers of retailers with limited selling capacity

Author

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  • Ramón Faulí-Oller

    (Universidad de Alicante)

Abstract

We consider two (symmetric) upstream firms producing independent goods that sell to consumers through symmetric retailers. The distinguishing feature of retailers is that they have a selling capacity, in the sense, that there is an upper limit in the total units of the two goods they can sell. For low enough capacity levels, we obtain that wholesale prices are increasing in the capacity and therefore we find cases where profits of retailers increase by restricting capacity. Keeping constant the industry selling capacity, we study the profitability of the merger of all retailers. For low capacity levels we obtain that wholesale prices increase with the merger and therefore the merger of retailers is not profitable.

Suggested Citation

  • Ramón Faulí-Oller, 2009. "Mergers of retailers with limited selling capacity," Working Papers. Serie AD 2009-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2009-26
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2009-26.pdf
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    References listed on IDEAS

    as
    1. Maliar, Lilia & Maliar, Serguei & Valli, Fernando, 2010. "Solving the incomplete markets model with aggregate uncertainty using the Krusell-Smith algorithm," Journal of Economic Dynamics and Control, Elsevier, vol. 34(1), pages 42-49, January.
    2. Carlos Oyarzun & Paan Jindapon, 2009. "Strategic truth and deception," Working Papers. Serie AD 2009-24, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    3. Menner, Martin, 2007. "The role of search frictions for output and inflation dynamics: a Bayesian assessment," UC3M Working papers. Economics we076235, Universidad Carlos III de Madrid. Departamento de Economía.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Zafeira Kastrinaki & Paul Stoneman, 2011. "Merger Patterns in the European Food Supply Chain," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(3), pages 463-487, November.

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    More about this item

    Keywords

    retailing; mergers; selling capacity;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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