Passive backward acquisitions and downstream collusion

Shiva Shekhar and Tim Paul Thomes

Economics Letters, 2020, vol. 197, issue C

Abstract: We investigate the effects of passive backward acquisitions in their efficient upstream supplier on downstream firms’ ability to collude in a dynamic game of price competition with homogeneous goods. We find that passive backward acquisitions impede downstream collusion. The main driver of our finding is that a passive backward acquisition secures an acquirer from zero continuation profits after a breakdown of collusion. This anti-collusive effect cannot be outweighed by a lower collusive price that is set by the cartel to increase the acquirer’s profit from its claim on the upstream margin.

Keywords: Tacit collusion; Passive backward acquisitions; Bertrand competition (search for similar items in EconPapers)
JEL-codes: D43 L13 L40 L81 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Passive backward acquisitions and downstream collusion (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:197:y:2020:i:c:s0165176520303712

DOI: 10.1016/j.econlet.2020.109611

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