Passive backward acquisitions and downstream collusion

Shiva Shekhar and Tim Paul Thomes

No 351, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

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
New Economics Papers: this item is included in nep-com, nep-gth and nep-ind
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:351

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