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Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries

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  • Inderst, Roman
  • Wey, Christian

Abstract

We analyze up- and downstream market structure and the choice of technology in a bilaterally oligopolistic industry. The distribution of industry profits between up- and downstream firms is determined by a procedure of bilateral negotiations, which is shown to generate the Shapley value. Incentives for downstream mergers depend on whether upstream firms have increasing or decreasing unit costs, while incentives for upstream mergers depend on whether products are substitutes or complements. Incentives for upstream firms to reduce marginal costs increase with a downstream merger and decrease with an upstream merger. Finally, downstream firms may strategically choose a particular market structure to affect upstream technology choice. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • Inderst, Roman & Wey, Christian, 2003. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    • Handle: RePEc:rje:randje:v:34:y:2003:i:1:p:1-19
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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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