Economics at your fingertips  

Downstream horizontal mergers and wholesale price discrimination

Konstantinos Charistos (), Christos Constantatos () and Ioannis Pinopoulos
Additional contact information
Konstantinos Charistos: University of Macedonia, Thessaloniki, Greece
Christos Constantatos: University of Macedonia, Thessaloniki, Greece

Economics Bulletin, 2020, vol. 40, issue 4, 3124-3130

Abstract: This paper provides a theoretical model that highlights the fact that market power and/or efficiency gains associated with a downstream merger create asymmetries between merged and non-merged firms, which in turn may lead an upstream supplier to engage in price discrimination. We consider a supply chain with one supplier and three differentiated retailers that compete in a Cournot-Nash fashion. Trade is conducted via observable two-part tariffs. We assume that two retailers decide to merge. Pre-merger, all retailers obtain the same marginal wholesale price since they are identical. Post-merger, the larger merged entity – because it is more cost-efficient and it is endowed with a larger product portfolio – obtains a lower marginal wholesale price than its non-merged rival. Allocative efficiency increases and, different from existing merger theory in one-tier markets, the merger always increases consumer surplus and total welfare regardless of the magnitude of the efficiency gains.

Keywords: Vertical relations; Horizontal mergers; Wholesale price discrimination; Market power; Efficiency gains; Welfare (search for similar items in EconPapers)
JEL-codes: L4 L2 (search for similar items in EconPapers)
Date: 2020-11-27
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().

Page updated 2021-05-01
Handle: RePEc:ebl:ecbull:eb-20-00878