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Downstream mergers in vertically related markets with capacity constraints

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  • Martimort, David
  • Pouyet, Jérôme

Abstract

Motivated by a recent merger proposal in the French outdoor advertising market, we develop a model in which firms are initially endowed with some advertising capacities and compete on two fronts. First, firms compete to acquire additional advertising capacities on an upstream market; a first stage modeled as a second-price auction with externalities. Second, those firms, privately informed on their own costs, use their capacities on the downstream market to supply advertisers whose demand is random; a second stage modeled by means of mechanism design techniques. We study the linkages between the equilibrium outcomes on both markets. When a firm is endowed with more initial capacity, through the acquisition of a competitor for instance, whether it becomes more or less eager to acquire extra capacity on the upstream market depends a priori on fine details of the downstream market. Under reasonable choices of functional forms, we demonstrate that a downstream merger does not create any bias in the upstream market towards the already dominant firm.

Suggested Citation

  • Martimort, David & Pouyet, Jérôme, 2020. "Downstream mergers in vertically related markets with capacity constraints," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:indorg:v:72:y:2020:i:c:s0167718720300667
    DOI: 10.1016/j.ijindorg.2020.102643
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    Cited by:

    1. Kasberger, Bernhard, 2023. "When can auctions maximize post-auction welfare?," International Journal of Industrial Organization, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    Merger; Vertically related markets; Competition with capacity constraints;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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