Upstream Mergers, Downstream Mergers, and Secret Vertical Contracts

C. Fumagalli and Massimo Motta ()

Economics Working Papers from European University Institute

Abstract: In an industry characterised by secret vertical contracts, we consider a benchmark case where two vertical chains exist, with two upstream manufacturers selling to two downstream retailers, and show that the equilibrium prices are independent of whether upstream or downstream firms have all the bargaining power. We then analyse two alternative mergers, and show that a downstream merger (which gives the downstream monopolist all the bargaining power) is more welfare detrimental than an upstream merger (which gives the bargaining power to the upstream monopolist). We also show that downstream and upstream mergers have the same effects when contracts are observable.

Keywords: MERGERS; VERTICAL INTEGRATION; MARKET STRUCTURE (search for similar items in EconPapers)
JEL-codes: D40 G34 L10 L42 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1999
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Journal Article: Upstream mergers, downstream mergers, and secret vertical contracts (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco99/38

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