Do Vertical Mergers Facilitate Upstream Collusion?

Volker Nocke and Lucy White

No 4186, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we investigate the impact of vertical mergers on upstream firms? ability to sustain collusion. We show in a number of models that the net effect of vertical integration is to facilitate collusion. Several effects arise. When upstream offers are secret, vertical mergers facilitate collusion through the operation of an outlets effect: cheating unintegrated firms can no longer profitably sell to the downstream affiliates of their integrated rivals. Vertical integration also facilitates collusion through a reaction effect: the vertically-integrated firm?s contract with its downstream affiliate can be more flexible and thus allows a swifter reaction in punishing defectors. Offsetting these two effects is a possible punishment effect that arises if the integrated structure is able to make more profits in the punishment phase than a disintegrated structure.

Keywords: Vertical mergers; Collusion (search for similar items in EconPapers)
JEL-codes: L13 L42 (search for similar items in EconPapers)
Date: 2004-01
New Economics Papers: this item is included in nep-com and nep-ind
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP4186 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Do Vertical Mergers Facilitate Upstream Collusion? (2007)
Working Paper: Do Vertical Mergers Facilitate Upstream Collusion? (2004)
Working Paper: Do Vertical Mergers Facilitate Upstream Collusion? (2003)
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:cpr:ceprdp:4186

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4186

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().