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Upstream Mergers, Downstream Mergers, and Unionized Oligopoly

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  • Shu-Hua Chang

Abstract

In a duopolistic industry characterized by unobserved vertical contracts, and where there are two vertical chains with two upstream manufacturers selling to two downstream retailers, we show that the wage is jointly determined by the union and the firm through bargaining and that the wage bargaining power of the union under different regimes, regardless of whether an upstream merger or a downstream merger takes place, will determine the degree of the welfare damage effect. It is also found that an upstream or a downstream monopolist, regardless of whether it possesses the right to franchise, will exert no impact on the equilibrium outputs and total profit, and will only affect the distribution of profits within the vertical chain.

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  • Shu-Hua Chang, 2005. "Upstream Mergers, Downstream Mergers, and Unionized Oligopoly," The American Economist, Sage Publications, vol. 49(2), pages 67-74, October.
    • Handle: RePEc:sae:amerec:v:49:y:2005:i:2:p:67-74
    DOI: 10.1177/056943450504900208
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    References listed on IDEAS

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    1. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    2. Fumagalli, Chiara & Motta, Massimo, 2001. "Upstream mergers, downstream mergers, and secret vertical contracts," Research in Economics, Elsevier, vol. 55(3), pages 275-289, September.
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