Rivals’ Exit and Vertical Merger Evaluation

Javier D. Donna and Pedro Pereira
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Javier D. Donna: University of Florida

No 225, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We discuss a subset of vertical mergers, where the exercise of market power and the efficiencies enabled by a vertical merger reduce rivals’ profits, making rivals’ exit a potentially serious concern. Rivals’ exit can fundamentally alter the welfare analysis of vertical mergers due to the reduction in product variety to consumers and the reduction in the number of competitors that would otherwise exert downward pricing pressure. An exit-inducing vertical merger might reduce welfare even if it is a welfare-enhancing merger absent exit. We present a theoretical framework to analyze vertical mergers that focuses on the possibility and consequences of exit, discuss the antitrust implications for merger evaluation, and provide examples. We argue that the possibility of rivals’ exit should be an integral part of the analysis of vertical mergers.

Keywords: Antitrust; Vertical Mergers; Rivals’ Exit; Double Marginalization; Merger Evaluation; Competition Policy. (search for similar items in EconPapers)
JEL-codes: K21 K41 L42 L44 L52 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2023-03
New Economics Papers: this item is included in nep-com, nep-ind, nep-law, nep-mic and nep-reg
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Citations: View citations in EconPapers (2)

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https://rednie.eco.unc.edu.ar/files/DT/225.pdf (application/pdf)

Related works:
Journal Article: Rivals’ Exit and Vertical Merger Evaluation (2023)
Working Paper: Rivals’ Exit and Vertical Merger Evaluation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:225

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