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Simulating Mergers in a Vertical Supply Chain with Bargaining

Author

Listed:
  • Gloria Sheu

    (U.S. Department of Justice)

  • Charles Taragin

    (U.S. Department of Justice)

Abstract

We model a two-level supply chain where Nash bargaining occurs upstream, while firms compete in a differentiated products logit setting downstream. The parameters of this model can be calibrated with a discrete set of data on prices, margins, and market shares. Using a series of numerical experiments, we illustrate how the model can simulate the outcome of both horizontal and vertical mergers. In addition, we extend the framework to allow for downstream competition via a second score auction.

Suggested Citation

  • Gloria Sheu & Charles Taragin, 2017. "Simulating Mergers in a Vertical Supply Chain with Bargaining," EAG Discussions Papers 201703, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:201703
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    File URL: https://www.justice.gov/atr/simulating-mergers-vertical-supply-chain-bargaining
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    Citations

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    Cited by:

    1. Willem H. Boshoff & Luke M. Froeb & Wihan Marais & Roan J. Minnie & Steven Tschantz, 2025. "Bargaining Competition and Vertical Mergers: The Problem of Model Selection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(2), pages 141-183, February.
    2. Panhans, Matthew T. & Taragin, Charles, 2023. "Consequences of model choice in predicting horizontal merger effects," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    3. William P. Rogerson, 2021. "The Upstream Pass-Through Rate, Bargaining Power and the Magnitude of the Raising Rivals’ Costs (RRC) Effect," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 205-227, September.
    4. Michael Vita & Keith Brand & Miriam Larson-Koester & Nathan Petek & Charles Taragin & William Violette & Daniel H. Wood, 2022. "Economics at the FTC: Estimating Harm from Deception and Analyzing Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(4), pages 405-438, December.
    5. Slade, Margaret E., 2019. "Vertical Mergers: Ex Post Evidence and Ex Ante Evaluation Methods," Microeconomics.ca working papers margaret_e._slade-2019-10, Vancouver School of Economics, revised 25 Jun 2019.
    6. Y. Jeff Qiu & Masayuki Sawada & Gloria Sheu, 2024. "Win/Loss Data and Consumer Switching Costs: Measuring Diversion Ratios and the Impact of Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 72(1), pages 327-355, March.
    7. Mansley, Ryan & Miller, Nathan H. & Sheu, Gloria & Weinberg, Matthew C., 2023. "A price leadership model for merger analysis," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    8. Margaret Loudermilk & Gloria Sheu & Charles Taragin, 2023. "Beyond "Horizontal" and "Vertical": The Welfare Effects of Complex Integration," Finance and Economics Discussion Series 2023-005, Board of Governors of the Federal Reserve System (U.S.).
    9. Margaret E. Slade, 2021. "Vertical Mergers: A Survey of Ex Post Evidence and Ex Ante Evaluation Methods," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(4), pages 493-511, June.
    10. Gloria Sheu & Charles Taragin, 2021. "Simulating mergers in a vertical supply chain with bargaining," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 596-632, September.
    11. William P. Rogerson, 2020. "Modelling and predicting the competitive effects of vertical mergers: The bargaining leverage over rivals effect," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 407-436, May.
    12. Luke M. Froeb & Russell W. Pittman & Charles S. Taragin & Steven Tschantz & Gregory J. Werden, 2018. "Economics at the Antitrust Division: 2017–2018," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(4), pages 637-651, December.
    13. Kadner-Graziano, Alessandro S., 2023. "Mergers of Complements: On the Absence of Consumer Benefits," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    14. Carlton, Dennis W., 2020. "Transaction costs and competition policy," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    15. Xiaowei Yu & Keith Waehrer, 2024. "Recursive Nash-in-Nash bargaining solution," Economics Bulletin, AccessEcon, vol. 44(1), pages 11-24.
    16. Luke M. Froeb & Vladimir Mares & Steven Tschantz & Charles Taragin, 2018. "The simple algebra of surplus in private values open auctions: A nested logit merger model," Economics Bulletin, AccessEcon, vol. 38(4), pages 2304-2312.
    17. Francine Lafontaine & Margaret E. Slade, 2021. "Presumptions in Vertical Mergers: The Role of Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 255-272, September.

    More about this item

    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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