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Can no antitrust policy be better than some antitrust policy?

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  • Mattoo, Aaditya

Abstract

The author examines how the market structure is likely to evolve where there is multistage oligopolistic production - and what the implications of this are for antitrust policy. The author treats the decision to merge across or within stages of production as endogenous. He shows that when firms at a particular stage of production are relatively dominant, simultaneous merger decision are conducive to competitive vertically integrated outcomes, while sequential decisions are not. The persistence of non-integrated market structures may be explained by the existence of equally dominant firms that make merger decisions sequentially. The credible threat of retaliatory merger may deter both socially desirable and undesirable forms of merger. What implications does the author's findings have for antitrust policymakers? For one thing, partial antitrust policy may lead to less competitive market structures than the total absence of such policy, because policy barriers to horizontal mergers only at a particular stage of production eliminate the deterrent effect of retaliatory merger. For example, if the two stages of production are located in countries with different antitrust legislation, a policy that protects consumers from domestic mergers may ultimately hurt them by rendering foreign mergers more attractive. When the equilibrium market structure does not contain socially undesirable mergers, there is no need for antitrust (or competition) policy. Moreover, there may sometimes be a case for the government actually providing supplementary incentives to encourage particular forms of merger - as, for instance, when the threat of retaliatory merger deters socially desirable vertical mergers.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2191.

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Date of creation: 30 Sep 1999
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Handle: RePEc:wbk:wbrwps:2191

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Keywords: General Technology; Economic Theory&Research; Microfinance; Environmental Economics&Policies; Small and Medium Size Enterprises; Economic Theory&Research; Environmental Economics&Policies; Microfinance; Private Participation in Infrastructure; General Technology;

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    • G. Frank Mathewson & Ralph A. Winter, 1995. "Buyer Groups," Working Papers rwinter-96-01, University of Toronto, Department of Economics.
  3. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series, Research Institute of Industrial Economics 513, Research Institute of Industrial Economics.
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  9. Chatterjee, Kalyan & Bhaskar Dutta & Debraj Ray & Kunal Sengupta, 1993. "A Noncooperative Theory of Coalitional Bargaining," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(2), pages 463-77, April.
  10. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. Perry, Martin K & Groff, Robert H, 1985. "Resale Price Maintenance and Forward Integration into a Monopolistically Competitive Industry," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1293-1311, November.
  12. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(2), pages 205-29, October.
  13. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(2), pages 345-56, May.
  14. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  16. Innes, Robert & Sexton, Richard J, 1994. "Strategic Buyers and Exclusionary Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 566-84, June.
  17. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  18. Salinger, Michael A, 1989. "The Meaning of "Upstream" and "Downstream" and the Implications for Modeling Vertical Mergers," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 37(4), pages 373-87, June.
  19. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
  20. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 127-42, March.
  21. 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, MIT Press, vol. 98(2), pages 185-99, May.
  22. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 18(2), pages 155-162, April.
  23. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, Elsevier, vol. 23(1), pages 15-27, August.
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