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Anticompetitive vertical mergers waves

Author

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  • Johan Hombert

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique, ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique)

  • Jérôme Pouyet

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, CEPR, PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Nicolas Schutz

    (Department of Economics, Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper develops an equilibrium model of vertical mergers. We show that competition on an upstream market between integrated firms only is less intense than in the presence of unintegrated upstream firms. Indeed, when an integrated firm supplies the upstream market, it becomes a soft downstream competitor to preserve its upstream profits. This benefits other integrated firms, which may therefore choose not to cut prices on the upstream market. This mechanism generates waves of vertical mergers in which every upstream firm integrates with a downstream firm, and the remaining unintegrated downstream firms obtain the input at a high upstream price. We show that these anticompetitive vertical mergers waves are more likely when downstream competition is fiercer.

Suggested Citation

  • Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2009. "Anticompetitive vertical mergers waves," PSE Working Papers hal-00440143, HAL.
  • Handle: RePEc:hal:psewpa:hal-00440143
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00440143
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    References listed on IDEAS

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    Cited by:

    1. Christos Constantatos & Ioannis Pinopoulos, 2013. "Accommodation effects in successive Cournot Oligopolies," Discussion Paper Series 2013_06, Department of Economics, University of Macedonia, revised Dec 2013.
    2. Liu, Xingyi, 2016. "Vertical integration and innovation," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 88-120.
    3. Pouyet, Jérôme & Trégouët, Thomas, 2016. "Vertical Mergers in Platform Markets," CEPR Discussion Papers 11703, C.E.P.R. Discussion Papers.
    4. Kokoreva, Maria S. & Stepanova, Anastasia N. & Karnoukhova, Elena V., 2016. "What We Do not Know about the Ownership Structure of the Largest U.S. Companies?," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 36-59, December.

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