Merger Review for Markets with Buyer Power

Simon Loertscher and Leslie Marx

Journal of Political Economy, 2019, vol. 127, issue 6, 2967 - 3017

Abstract: We analyze the competitive effects of mergers in markets with buyer power. Using mechanism design arguments, we show that without cost synergies, mergers harm buyers, regardless of buyer power. However, buyer power mitigates the harm to a buyer from a merger of symmetric suppliers. With buyer power, a merger increases incentives for entry, increases investment incentives for rivals, and can increase investment incentives for merging parties. Because buyer power reduces the profitability of a merger, it increases the profitability of perfect collusion relative to a merger. Cost synergies can eliminate merger harm but also render otherwise profitable mergers unprofitable.

Date: 2019
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