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Anticompetitive vertical mergers waves

Author

Listed:
  • Johan Hombert

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique)

  • Jérôme Pouyet

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris, CEPR, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Nicolas Schutz

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

Abstract
This paper develops an equilibrium model of vertical mergers. We show that competition on an upstream market between integrated firms only is less intense than in the presence of unintegrated upstream firms. Indeed, when an integrated firm supplies the upstream market, it becomes a soft downstream competitor to preserve its upstream profits. This benefits other integrated firms, which may therefore choose not to cut prices on the upstream market. This mechanism generates waves of vertical mergers in which every upstream firm integrates with a downstream firm, and the remaining unintegrated downstream firms obtain the input at a high upstream price. We show that these anticompetitive vertical mergers waves are more likely when downstream competition is fiercer.

Suggested Citation

  • Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2009. "Anticompetitive vertical mergers waves," Working Papers hal-00440143, HAL.
    • Handle: RePEc:hal:wpaper:hal-00440143
    Note: View the original document on HAL open archive server: https://hal.science/hal-00440143
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    References listed on IDEAS

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    Cited by:

    1. Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2019. "Anticompetitive Vertical Merger Waves," Journal of Industrial Economics, Wiley Blackwell, vol. 67(3-4), pages 484-514, September.
    2. Christos Constantatos & Ioannis Pinopoulos, 2013. "Accommodation effects in successive Cournot Oligopolies," Discussion Paper Series 2013_06, Department of Economics, University of Macedonia, revised Dec 2013.
    3. Pouyet, Jérôme & Thomas, Trégouët, 2021. "The Competitive Effects of Vertical Integration in Platform Markets," CEPR Discussion Papers 16545, C.E.P.R. Discussion Papers.
    4. Francisco Gildemir Ferreira da Silva & Renata Lúcia Magalhães de Oliveira & Marin Marinov, 2020. "An Analysis of the Effects on Rail Operational Efficiency Due to a Merger between Brazilian Rail Companies: The Case of RUMO-ALL," Sustainability, MDPI, vol. 12(12), pages 1-23, June.
    5. Pouyet, Jérôme & Trégouët, Thomas, 2016. "Vertical Mergers in Platform Markets," CEPR Discussion Papers 11703, C.E.P.R. Discussion Papers.
    6. Pouyet, Jérôme & Hombert, Johan & Schutz, Nicolas, 2007. "Wholesale Markets in Telecommunications," CEPR Discussion Papers 6224, C.E.P.R. Discussion Papers.
    7. Izak Atiyas & Toker Doganoglu & Firat Inceoglu, 2021. "Upstream Competition with Complex and Unobservable Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 399-429, May.
    8. Liu, Xingyi, 2016. "Vertical integration and innovation," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 88-120.

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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