Downstream Mergers And Upstream Investment
In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.
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- Henrick Horn & Asher Wolinsky, 1988.
"Bilateral Monopolies and Incentives for Merger,"
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Games and Economic Behavior,
Elsevier, vol. 3(3), pages 323-338, August.
- Morton I. Kamien & Israel Zang, 1988. "Competitively Cost Advantageous Mergers and Monopolization," Discussion Papers 799, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
- repec:ebl:ecbull:v:12:y:2005:i:9:p:1-5 is not listed on IDEAS
- Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
- Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
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