EconPapers    
Economics at your fingertips  
 

The Nonequivalence of Vertical Merger and Exclusive Dealing

Harry Frech

International Journal of the Economics of Business, 1997, vol. 4, issue 1, 33-50

Abstract: The economic and legal view of vertical integration has varied over time, but, a constant source of concern is the fear that the integrated firm will foreclose competitors from intermediate markets. At the same time, most commentators have considered the economics of vertical contracts, especially exclusive dealing, to be essentially identical to vertical merger. Using the simple model of Comanor and Freeh [Comanor, William S. and Freeh, H.E., III, "The Competitive Effects of Vertical Agreements?" American Economic Review, June 1985, 75, 3, 539-46], it is shown that vertical mergers and exclusive dealing contracts are not behaviorally equivalent. In particular, vertical mergers will not lead to foreclosure of rivals for anticompetitive reasons, while ordinary exclusive dealing contracts will lead to such anticompetitive foreclosure. Vertical mergers avoid certain externalities that exclusive dealing contracts create. In this model, vertical mergers can only cause anticompetitive problems through their horizol aspects, by creating a monopoly of distributors. Of course, merger can always be mimicked by a complex enough contract between nominally independent parties. In this model, the contracts that mimic the merger require two parties to agree on the price of a third party's products and are particularly subject to being undermined by price-cutting. Thus, it is likely to be uncommon.

Keywords: Vertical; Foreclosure; Contracts; Mergers; Restrictions (search for similar items in EconPapers)
Date: 1997
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.tandfonline.com/10.1080/758532192 (text/html)
Access to full text is restricted to subscribers.

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: https://EconPapers.repec.org/RePEc:taf:ijecbs:v:4:y:1997:i:1:p:33-50

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/CIJB20

DOI: 10.1080/758532192

Access Statistics for this article

International Journal of the Economics of Business is currently edited by Eleanor Morgan

More articles in International Journal of the Economics of Business from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2020-03-29
Handle: RePEc:taf:ijecbs:v:4:y:1997:i:1:p:33-50