Downstream mergers in vertically related markets with capacity constraints

David Martimort and Jerome Pouyet

International Journal of Industrial Organization, 2020, vol. 72, issue C

Abstract: Motivated by a recent merger proposal in the French outdoor advertising market, we develop a model in which firms are initially endowed with some advertising capacities and compete on two fronts. First, firms compete to acquire additional advertising capacities on an upstream market; a first stage modeled as a second-price auction with externalities. Second, those firms, privately informed on their own costs, use their capacities on the downstream market to supply advertisers whose demand is random; a second stage modeled by means of mechanism design techniques. We study the linkages between the equilibrium outcomes on both markets. When a firm is endowed with more initial capacity, through the acquisition of a competitor for instance, whether it becomes more or less eager to acquire extra capacity on the upstream market depends a priori on fine details of the downstream market. Under reasonable choices of functional forms, we demonstrate that a downstream merger does not create any bias in the upstream market towards the already dominant firm.

Keywords: Merger; Vertically related markets; Competition with capacity constraints (search for similar items in EconPapers)
JEL-codes: D4 D8 L1 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:72:y:2020:i:c:s0167718720300667

DOI: 10.1016/j.ijindorg.2020.102643

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