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Information markets, product markets and vertical merger

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  • Jihui Chen
  • Qihong Liu

Abstract

In many markets, firms have the option of advertising at price comparison sites to broaden their market reach. Such sites are often controlled by profit-maximizing “information gatekeepers” charging advertising fees. This paper considers vertical merger between such a monopoly information gatekeeper and a firm in the product market. We find that: (i) If the integrated firm can act as a price leader before independent firms make advertising and pricing decisions, then the merger is profitable. (ii) If the integrated firm cannot move first, then the merger is unprofitable, or divestiture is optimal in the case where the firm has already created the gatekeeper. As a result, the merged entity has an incentive to invest in technologies to support a price leader. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Jihui Chen & Qihong Liu, 2013. "Information markets, product markets and vertical merger," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(1), pages 33-61, January.
    • Handle: RePEc:spr:jecfin:v:37:y:2013:i:1:p:33-61
    DOI: 10.1007/s12197-010-9169-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Information gatekeeper; Vertical merger; Price leader; D43; L13; L40;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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