IDEAS home Printed from https://ideas.repec.org/p/ecm/wc2000/0383.html
   My bibliography  Save this paper

On Vertical Mergers and Their Competitive Effects

Author

Listed:
  • Yongmin Chen

    (University of Colorado at Boulder)

Abstract

It is well known that vertical integration can change an upstream producer's incentive to supply the integrated firm's downstream rivals. However, it has not been noticed that vertical integration also changes these rivals' incentive to choose suppliers. Once this is recognized, some important results in the literature are shown to be incorrect. An equilibrium theory of vertical merger is then developed. Under fairly general conditions, vertical mergers will result in both efficiency gains and market foreclosure (collusion), and a familiar measure concerning product differentiation can be used to evaluate whether a vertical merger tends to benefit or harm consumers.

Suggested Citation

  • Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society.
    • Handle: RePEc:ecm:wc2000:0383
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/RePEc/es2000/0383.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    2. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    3. Kenneth J. Arrow, 1975. "Vertical Integration and Communication," Bell Journal of Economics, The RAND Corporation, vol. 6(1), pages 173-183, Spring.
    4. Reiffen, David, 1992. "Equilibrium Vertical Foreclosure: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 694-697, June.
    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    7. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    8. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    9. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, vol. 88(5), pages 1232-1248, December.
    10. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    11. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(2), pages 345-356.
    12. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
    13. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    14. Gal-Or, Esther, 1999. "Vertical integration or separation of the sales function as implied by competitive forces," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 641-662, July.
    15. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1992. "Equilibrium Vertical Foreclosure: Reply," American Economic Review, American Economic Association, vol. 82(3), pages 698-703, June.
    16. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    2. Noriaki Matsushima, 2009. "Vertical Mergers And Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 812-834, December.
    3. Normann, Hans-Theo, 2009. "Vertical integration, raising rivals' costs and upstream collusion," European Economic Review, Elsevier, vol. 53(4), pages 461-480, May.
    4. Matsushima, Noriaki & Mizuno, Tomomichi, 2013. "Vertical separation as a defense against strong suppliers," European Journal of Operational Research, Elsevier, vol. 228(1), pages 208-216.
    5. Zava Aydemir & Stefan Buehler, 2002. "Estimating Vertical Foreclosure in U.S. Gasoline Supply," SOI - Working Papers 0212, Socioeconomic Institute - University of Zurich.
    6. Simon Loertscher & Leslie M. Marx, 2022. "Incomplete Information Bargaining with Applications to Mergers, Investment, and Vertical Integration," American Economic Review, American Economic Association, vol. 112(2), pages 616-649, February.
    7. Bruno Larue & Olivier Bonroy, 2009. "Seemingly Competitive Food Retail Regulations: Who Do They Really Help?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(3), pages 305-324, September.
    8. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    9. Roberto Hernán González & Praveen Kujal, 2012. "Vertical integration, market foreclosure and quality investment," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 11(1), pages 1-20, April.
    10. Jaideep Shenoy, 2012. "An Examination of the Efficiency, Foreclosure, and Collusion Rationales for Vertical Takeovers," Management Science, INFORMS, vol. 58(8), pages 1482-1501, August.
    11. René Aïd & Gilles Chemla & Arnaud Porchet & Nizar Touzi, 2011. "Hedging and Vertical Integration in Electricity Markets," Management Science, INFORMS, vol. 57(8), pages 1438-1452, August.
    12. Jain, Bharat A. & Kini, Omesh & Shenoy, Jaideep, 2011. "Vertical divestitures through equity carve-outs and spin-offs: A product markets perspective," Journal of Financial Economics, Elsevier, vol. 100(3), pages 594-615, June.
    13. Inderst, Roman & Wey, Christian, 2003. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    14. Choi, Jay Pil & Yi, Sang-Seung, 2016. "An equilibrium model of investment-reducing vertical integration," Research in Economics, Elsevier, vol. 70(4), pages 659-676.
    15. Hans-Theo Normann, 2004. "Equilibrium Vertical Foreclosure in the Repeated Game," Industrial Organization 0408008, University Library of Munich, Germany.
    16. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November.
    17. Laurent Linnemer, 2000. "When Backward Integration by a Dominant Firm Improves Welfare," Working Papers 2000-42, Center for Research in Economics and Statistics.
    18. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure: a policy framework," CPB Document 157, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Mattoo, Aaditya, 1999. "Can no antitrust policy be better than some antitrust policy?," Policy Research Working Paper Series 2191, The World Bank.
    20. Mariana Cunha & Paula Sarmento, 2014. "Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 1-38, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:0383. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.