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Welfare Effects Of Downstream Mergers And Upstream Market Concentration

Author

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  • RAMON FAULI-OLLER

    (University of Alicante, Economics Department, Campus de Sant Vicent del Raspeig, E-03071, Alicante, Spain)

  • JOEL SANDONIS

    (University of Alicante, Economics Department, Campus de Sant Vicent del Raspeig, E-03071, Alicante, Spain)

Abstract

We consider a dominant upstream firm selling an input to several downstream firms through observable, non-discriminatory two-part tariff contracts. Downstream firms can alternatively buy the input from a less efficient source of supply. In this setting, we analyze the relationship between the competitive effects of downstream mergers and the level of concentration at the upstream level. We show that a downstream merger leads to lower wholesale prices. This translates into lower final prices only when the upstream market is sufficiently concentrated. In this case, a downstream merger tends to be both procompetitive and profitable.

Suggested Citation

  • Ramon Fauli-Oller & Joel Sandonis, 2016. "Welfare Effects Of Downstream Mergers And Upstream Market Concentration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(05), pages 1-16, December.
    • Handle: RePEc:wsi:serxxx:v:61:y:2016:i:05:n:s0217590815500563
    DOI: 10.1142/S0217590815500563
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