Do Vertical Mergers Facilitate Upstream Collusion?
In this Paper we investigate the impact of vertical mergers on upstream firms’ ability to sustain collusion. We show in a number of models that the net effect of vertical integration is to facilitate collusion. Several effects arise. When upstream offers are secret, vertical mergers facilitate collusion through the operation of an outlets effect: cheating unintegrated firms can no longer profitably sell to the downstream affiliates of their integrated rivals. Vertical integration also facilitates collusion through a reaction effect: the vertically-integrated firm’s contract with its downstream affiliate can be more flexible and thus allows a swifter reaction in punishing defectors. Offsetting these two effects is a possible punishment effect that arises if the integrated structure is able to make more profits in the punishment phase than a disintegrated structure.
|Date of creation:||Jan 2004|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bernheim, B.D., 1992.
Harvard Institute of Economic Research Working Papers
1622, Harvard - Institute of Economic Research.
- Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-265, March.
- H. R. Tosdal, 1917. "The German Steel Syndicate," The Quarterly Journal of Economics, Oxford University Press, vol. 31(2), pages 259-306.
- 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.
- Patrick Rey & Thibaud Vergé, 2004.
"Bilateral Control with Vertical Contracts,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(4), pages 728-746, Winter.
- Rey, Patrick & Vergé, Thibaud, 2003. "Bilateral Control with Vertical Contracts," IDEI Working Papers 202, Institut d'Économie Industrielle (IDEI), Toulouse.
- Patrick Rey & Thibaud Verge, 2002. "Bilateral Control with Vertical Contracts," The Centre for Market and Public Organisation 02/048, Department of Economics, University of Bristol, UK.
- Patrick Rey & Thibaud Vergé, 2003. "Bilateral Control with Vertical Contracts," Industrial Organization 0309005, EconWPA.
- Bruno Jullien & Patrick Rey, 2007.
"Resale price maintenance and collusion,"
RAND Journal of Economics,
RAND Corporation, vol. 38(4), pages 983-1001, December.
- Ken Hendricks & Rob Porter & Guofu Tan, 2000. "Joint Bidding in Federal Offshore Oil and Gas Lease Auctions," Econometric Society World Congress 2000 Contributed Papers 1763, Econometric Society.
- Levenstein, Margaret C, 1997.
"Price Wars and the Stability of Collusion: A Study of the Pre-World War I Bromine Industry,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 45(2), pages 117-137, June.
- Margaret Levenstein, 1993. "Price Wars and the Stability of Collusion: A Study of the Pre-World War I Bromine Industry," NBER Historical Working Papers 0050, National Bureau of Economic Research, Inc.
- Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn.
- Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
- Yongmin Chen, 2000.
"On Vertical Mergers and Their Competitive Effects,"
Econometric Society World Congress 2000 Contributed Papers
0383, Econometric Society.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
- Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
- James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
- Yongmin Chen, 2005. "Vertical Disintegration," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 209-229, 03.
- Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
- Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
- Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
- Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4186. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.