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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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Related research

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;

References

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  1. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
  2. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  3. 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.
  4. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  5. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series 513, Research Institute of Industrial Economics.
  6. G. Frank Mathewson & Ralph A. Winter, 1995. "Buyer Groups," Working Papers rwinter-96-01, University of Toronto, Department of Economics.
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  8. 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, vol. 100(4), pages 1293-1311, November.
  9. Waterson, Michael, 1982. "Vertical Integration, Variable Proportions and Oligopoly," Economic Journal, Royal Economic Society, vol. 92(365), pages 129-44, March.
  10. Innes, Robert & Sexton, Richard J, 1994. "Strategic Buyers and Exclusionary Contracts," American Economic Review, American Economic Association, vol. 84(3), pages 566-84, June.
  11. Salinger, Michael A, 1989. "The Meaning of "Upstream" and "Downstream" and the Implications for Modeling Vertical Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 373-87, June.
  12. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, vol. 23(1), pages 15-27, August.
  13. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  14. McBride, Mark E, 1983. "Spatial Competition and Vertical Integration: Cement and Concrete Revisited," American Economic Review, American Economic Association, vol. 73(5), pages 1011-22, December.
  15. 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.
  16. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  18. Lin, Y Joseph, 1988. "Oligopoly and Vertical Integration: Note," American Economic Review, American Economic Association, vol. 78(1), pages 251-54, March.
  19. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-18, May.
  20. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
  21. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
  22. Chatterjee, Kalyan & Bhaskar Dutta & Debraj Ray & Kunal Sengupta, 1993. "A Noncooperative Theory of Coalitional Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 463-77, April.
  23. 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.
  24. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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