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Portfolio Analysis in European Merger Control: An Economic Analysis

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  • Thibaud Verge

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Abstract

The year 1997 saw the emergence of a new game theory in European merger control called the 'portfolio power theory'. The European Commission argues that the holder of a comprehensive portfolio of brands may obtain a stronger position vis-a-vis its customers, and can therefore more easily impose restrictions, such as full-line forcing. The objective of this paper is to analyse this argument from a theoretical point of view. We show that tie-in sales allow the incumbent to deter entry and to eliminate the retailer's rent when the downstream sector is monopolised. When the producers compete directly for consumers, the second brand provides a new predation tool. This allows the incumbent to deter entry more easily, but it can also limit price distortion. In both cases, the welfare impact is not clear-cut.

Suggested Citation

  • Thibaud Verge, 2002. "Portfolio Analysis in European Merger Control: An Economic Analysis," The Centre for Market and Public Organisation 02/046, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:02/046
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp46.pdf
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    References listed on IDEAS

    as
    1. Shaffer, Greg, 1991. "Capturing Strategic Rent: Full-Line Forcing, Brand Discounts, Aggregate Rebates, and Maximum Resale Price Maintenance," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 557-575, September.
    2. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    4. Blair, Roger D & Kaserman, David L, 1978. "Vertical Integration, Tying, and Antitrust Policy," American Economic Review, American Economic Association, vol. 68(3), pages 397-402, June.
    5. Margaret E. Slade, 1998. "The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising," Southern Economic Journal, Southern Economic Association, vol. 65(2), pages 204-222, October.
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    More about this item

    Keywords

    full-line forcing; entry deterrence; predatory pricing;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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