Downstream Merger with Oligopolistic Input Suppliers

Kjell Lommerud (), Odd Rune Straume, Lars Sørgard and Odd Rune Straume
Authors registered in the RePEc Author Service: Odd Rune Straume

No 733, CESifo Working Paper Series from CESifo

Abstract: We examine how a downstream merger affects input prices and, in turn, the profitability of a such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.

Keywords: merger profitability; input suppliers; trade unions; cross-border merger (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (1)

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