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"Vertical Market Power" as Oxymoron: Getting Convergence Mergers Right

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  • Brennan, Timothy

    () (Resources for the Future)

Abstract

“Vertical market power” is a contradiction in terms because “market power” is essentially horizontal—that is, it depends on relationships of firms within markets. FERC invokes the term to assess “convergence” mergers between electricity generators and natural gas suppliers. It misapplies Department of Justice guidelines for vertical mergers and fails to identify exceptions to a presumption that market power depends only on competitive conditions at any single stage. A three-stage test can assess whether convergence mergers resemble horizontal ones. The key stage is the third: A convergence merger is more problematic the less vertical it is—that is, if the acquiring generator had no prior dealings with the acquired gas supplier. FERC’s analyses in leading convergence merger cases fail this test. Focusing on how convergence mergers facilitate regulatory evasion by linking regulated and unregulated enterprises, and how they reduce the ability to keep proprietary information from competitors, would be more productive approaches.

Suggested Citation

  • Brennan, Timothy, 2001. ""Vertical Market Power" as Oxymoron: Getting Convergence Mergers Right," Discussion Papers dp-01-39, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-01-39
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-01-39.pdf
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    More about this item

    Keywords

    Vertical mergers; electricity restructuring; vertical integration; convergence; energy regulation;

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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