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Passive backward acquisitions and downstream collusion

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  • Shekhar, Shiva
  • Thomes, Tim Paul

Abstract

We investigate the effects of passive backward acquisitions in their efficient upstream supplier on downstream firms’ ability to collude in a dynamic game of price competition with homogeneous goods. We find that passive backward acquisitions impede downstream collusion. The main driver of our finding is that a passive backward acquisition secures an acquirer from zero continuation profits after a breakdown of collusion. This anti-collusive effect cannot be outweighed by a lower collusive price that is set by the cartel to increase the acquirer’s profit from its claim on the upstream margin.

Suggested Citation

  • Shekhar, Shiva & Thomes, Tim Paul, 2020. "Passive backward acquisitions and downstream collusion," Economics Letters, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303712
    DOI: 10.1016/j.econlet.2020.109611
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    References listed on IDEAS

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    Cited by:

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    3. Chuyuan Zhang & Sang‐Ho Lee, 2023. "Foreign passive ownership and tariff‐induced free technology transfer under vertical integration," Manchester School, University of Manchester, vol. 91(2), pages 89-117, March.

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    More about this item

    Keywords

    Tacit collusion; Passive backward acquisitions; Bertrand competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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