Conglomerate Mergers: Vertical Mergers in Disguise?
Tommy Gabrielsen ()
International Journal of the Economics of Business, 2003, vol. 10, issue 1, 1-16
The article offers a complementary theory for conglomerate mergers. The central argument is that a conglomerate merger may be a vertical merger in disguise. The acquisition of a non-competing firm takes place to achieve control over the target's distribution channel that otherwise could be used by rival entrants. The analysis shows that an entrant with a very differentiated product is accommodated, and an entrant with a close substitute is foreclosed through a conglomerate merger. There also exist equilibria with partial foreclosure where the entrant is forced onto less efficient distribution channels. Incumbent firms' mergers to achieve foreclosure is socially wasteful.
Keywords: Conglomerate Mergers; Distribution Channels; Foreclosure (search for similar items in EconPapers)
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