Successive Monopoly, Bilateral Monopoly and Vertical Mergers

Tirza J. Angerhofer () and Roger Blair
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Tirza J. Angerhofer: Duke University

Review of Industrial Organization, 2021, vol. 59, issue 2, No 10, 343-361

Abstract: Abstract The 2020 Vertical Merger Guidelines set out the enforcement policy of the Department of Justice and the Federal Trade Commission with regard to vertical mergers. The evaluation process centers on the elimination of double marginalization, raising rivals’ costs, and market foreclosure. The Agencies recognize that merger-specific efficiencies may save an otherwise objectionable merger. In this paper, our focus is on the welfare effects of vertical mergers in the presence of successive monopoly and bilateral monopoly. In both cases, a vertical merger is welfare enhancing, but the benefits may not be merger specific. We illustrate this proposition by examining contractual alternatives to vertical integration by merger. We argue that vertical integration may eliminate substantial transaction costs which are present in contractual alternatives. Consequently, a vertical merger may well be superior to these contractual alternatives.

Keywords: Bilateral monopoly; Successive monopoly; Transaction costs; Vertical integration (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11151-021-09825-y

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