Downstream horizontal mergers and wholesale price discrimination
Konstantinos Charistos (),
Christos Constantatos () and
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
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 â€“ because it is more cost-efficient and it is endowed with a larger product portfolio â€“ 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)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-20-00878
Access Statistics for this article
More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().