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Downstream merger with oligopolistic input suppliers

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  • Lommerud, Kjell Erik
  • Straume, Odd Rune
  • Sørgard, Lars

Abstract

We examine how a downstream merger affects input prices and, in turn, the profitability of such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.

Suggested Citation

  • Lommerud, Kjell Erik & Straume, Odd Rune & Sørgard, Lars, 2002. "Downstream merger with oligopolistic input suppliers," Discussion Papers, various Research Units FS IV 01-22, WZB Berlin Social Science Center.
  • Handle: RePEc:zbw:wzbdiv:fsiv0122
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    More about this item

    Keywords

    merger profitability; input suppliers; trade unions; cross-border merger;
    All these keywords.

    JEL classification:

    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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