Vertical Mergers with Input Substitution: Double Marginalization, Foreclosure and Welfare

Serge Moresi () and Marius Schwartz
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Serge Moresi: Charles River Associates, Inc., https://www.crai.com/our-people/serge-moresi/

Working Papers from Georgetown University, Department of Economics

Abstract: We consider differentiated duopolists that face symmetric linear demands and produce using identical or different Cobb-Douglas technologies with a monopolized input and a competitively supplied input. A merger between the input monopolist and either firm eliminates double marginalization but—unlike with fixed-proportions technologies in the same setting—can lead to foreclosure and reduce consumer welfare and total welfare. The same can occur under a CES technology with greater input substitutability than Cobb-Douglas. When firms use identical Cobb-Douglas technologies, the merged firm raises the rival’s cost by more, and the welfare effects are worse, when the input it controls constitutes a low rather than high share of downstream input costs. If that share is sufficiently low then consumer welfare and total welfare decline, while rising elsewhere despite foreclosure. With different Cobb-Douglas technologies, the input monopolist may foreclose completely either firm pre-merger. A merger’s welfare effects then can be non-monotonic in the monopoly input’s share of costs. Classification-L4, L41, L42

Keywords: Vertical Mergers; Foreclosure; Input Substitution; Antitrust (search for similar items in EconPapers)
Pages: 20
Date: 2021-03-14
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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Citations: View citations in EconPapers (5)

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Journal Article: Vertical mergers with input substitution: Double marginalization, foreclosure and welfare (2021)
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