"Vertical Market Power" as Oxymoron: Getting Convergence Mergers Right

Timothy Brennan

RFF Working Paper Series from Resources for the Future

Abstract: “Vertical market power” is a contradiction in terms because “market power” is essentially horizontal—that is, it depends on relationships of firms within markets. FERC invokes the term to assess “convergence” mergers between electricity generators and natural gas suppliers. It misapplies Department of Justice guidelines for vertical mergers and fails to identify exceptions to a presumption that market power depends only on competitive conditions at any single stage. A three-stage test can assess whether convergence mergers resemble horizontal ones. The key stage is the third: A convergence merger is more problematic the less vertical it is—that is, if the acquiring generator had no prior dealings with the acquired gas supplier. FERC’s analyses in leading convergence merger cases fail this test. Focusing on how convergence mergers facilitate regulatory evasion by linking regulated and unregulated enterprises, and how they reduce the ability to keep proprietary information from competitors, would be more productive approaches.

Keywords: Vertical mergers; electricity restructuring; vertical integration; convergence; energy regulation (search for similar items in EconPapers)
JEL-codes: D43 L22 L40 L94 (search for similar items in EconPapers)
Date: 2001-08-01
New Economics Papers: this item is included in nep-mic
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Working Paper: "Vertical Market Power" as Oxymoron: Getting Convergence Mergers Right (2001)
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