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Portfolio Effects and Merger Control: Full-line Forcing as an Entry Deterrence Strategy

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  • Thibaud Vergé

    (University of Southampton)

Abstract

The ''portfolio effect theory'' developed by the European Commission in merger control is at the center of a fierce international row with the US authorities who believe that this theory has no economic foundations. This paper aims to provide a counter-argument and shows that full-line forcing may be used by the holder a comprehensive range of products as an entry deterrence device to maintain its monopoly power. However, due to buyer power on the retail market, this will happen only if entry is not profitable for the industry as a whole. The effects on consumer welfare are ambiguous. Full-line forcing will reduce prices in the first period, but as it helps maintaining monopoly power, is harmful in the long-term.

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File URL: http://128.118.178.162/eps/io/papers/0301/0301010.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0301010.

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Length: 24 pages
Date of creation: 22 Jan 2003
Date of revision:
Handle: RePEc:wpa:wuwpio:0301010

Note: Type of Document - Pdf; prepared on PC-ScientificWord; to print on Postscript; pages: 24 ; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: Portfolio effects; competition policy; full-line forcing; entry deterrence.;

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References

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  1. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
  2. Barry Nalebuff, 2000. "Competing Against Bundles," Yale School of Management Working Papers ysm157, Yale School of Management.
  3. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," NBER Working Papers 6831, National Bureau of Economic Research, Inc.
  4. Shaffer, Greg, 1991. "Capturing Strategic Rent: Full-Line Forcing, Brand Discounts, Aggregate Rebates, and Maximum Resale Price Maintenance," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 557-75, September.
  5. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  6. Michael D. Whinston, 1989. "Tying, Foreclosure, and Exclusion," NBER Working Papers 2995, National Bureau of Economic Research, Inc.
  7. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, April.
  8. Margaret E. Slade, 1998. "The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising," Southern Economic Journal, Southern Economic Association, vol. 65(2), pages 204-222, October.
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