Conglomerate Mergers: Vertical Mergers in Disguise?

Tommy Gabrielsen

International Journal of the Economics of Business, 2003, vol. 10, issue 1, 1-16

Abstract: 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)
Date: 2003
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DOI: 10.1080/1357151032000043294

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