Revisiting the Impact of Upstream Mergers with Downstream Complements and Substitutes

Enrique Ide

Papers from arXiv.org

Abstract: I examine the impact of upstream mergers on negotiated prices when suppliers bargain with a monopoly intermediary selling products to final consumers. Conventional wisdom holds that such transactions reduce negotiated prices when the products are complements for consumers and increase prices when they are substitutes. This is because downstream complementarities or substitutabilities transfer to upstream negotiations, where a merger of complements (substitutes) weakens (strengthens) the suppliers' bargaining leverage. I challenge this view, showing that this logic breaks down when the intermediary's portfolio includes products beyond those of the merging suppliers. In such cases, the merging suppliers' products may act as substitutes for the intermediary even if they are complements for consumers, or as complements for the intermediary even if they are substitutes for consumers. These findings reveal that upstream conglomerate mergers can increase prices without foreclosure or monopolization, and offer an explanation for buyer-specific price effects in upstream mergers.

Date: 2024-02, Revised 2025-01
New Economics Papers: this item is included in nep-agr, nep-com and nep-ind
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