Vertical merger: monopolization for downstream quasi-rents

Richard S. Higgins
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Richard S. Higgins: Bates White, Washington, DC, USA, Postal: Bates White, Washington, DC, USA

Managerial and Decision Economics, 2009, vol. 30, issue 3, 183-191

Abstract: This paper provides a welfare analysis of vertical merger between an input monopolist and downstream firms that compete perfectly in a homogeneous product market. The distinguishing feature of the present model is that the downstream firms face capacity constraints. As a result of downstream quasi-rents, vertical merger-the extent of merger is gauged by the capacity share of the acquired downstream firm-may either raise or lower final output. An analytical criterion for distinguishing pro- and anti-competitive mergers is derived, which relies entirely on pre-merger market quantities and the capacity share of the downstream target. A common result is that vertical merger is output-increasing even when unaffiliated downstream rivals are completely foreclosed. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:30:y:2009:i:3:p:183-191

DOI: 10.1002/mde.1444

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