Downstream mergers in a vertically differentiated unionized oligopoly
AbstractIn the context of an international unionized oligopoly, with vertical differentiation and downstream and upstream firms locked in a bilateral monopoly, the pattern of downstream mergers is investigated. In such a setting, a downstream merger leads to a reduction in the price of the inputs. Such reduction is greater the more homogeneous the participants’ products are. However, it turns out that most of the market structure equilibria consist of mergers among differentiated producers. I find that firms’ strategic behaviour impedes mergers between similar producers, avoiding that input prices fall to their marginal costs. Given that firms can be harmed by rivals’ mergers, through the important reduction in input prices that those trigger, an scenario of preemptive mergers emerges. A brief social welfare analysis is also presented. It is shown that the market structure outcome is never socially optimal, neither in terms of consumer surplus nor social welfare. Nevertheless, the optimum could be achieved if antitrust authorities block some strategic mergers, precisely those involving more than two firms.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2010-31.
Length: 40 pages
Date of creation: Oct 2010
Date of revision:
Publication status: Published by Ivie
mergers; vertical differentiation; unionized oligopoly;
Find related papers by JEL classification:
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
- NEP-COM-2010-11-13 (Industrial Competition)
- NEP-IND-2010-11-13 (Industrial Organization)
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