Portfolio Analysis in European Merger Control: An Economic Analysis

Thibaud Vergé

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: The year 1997 saw the emergence of a new game theory in European merger control called the 'portfolio power theory'. The European Commission argues that the holder of a comprehensive portfolio of brands may obtain a stronger position vis-a-vis its customers, and can therefore more easily impose restrictions, such as full-line forcing. The objective of this paper is to analyse this argument from a theoretical point of view. We show that tie-in sales allow the incumbent to deter entry and to eliminate the retailer's rent when the downstream sector is monopolised. When the producers compete directly for consumers, the second brand provides a new predation tool. This allows the incumbent to deter entry more easily, but it can also limit price distortion. In both cases, the welfare impact is not clear-cut.

Keywords: full-line forcing; entry deterrence; predatory pricing (search for similar items in EconPapers)
JEL-codes: L13 L42 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2002-02
New Economics Papers: this item is included in nep-com, nep-eec, nep-fin and nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:bri:cmpowp:02/046

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