Forward Contracting and the Welfare Effects of Mergers

Nathan Miller
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Nathan Miller: Economic Analysis Group, Antitrust Division, U.S. Department of Justice

No 201301, EAG Discussions Papers from Department of Justice, Antitrust Division

Abstract: I extend the oligopoly model of Allaz and Vila (1993) to explore how forward contracting affects the adverse welfare consequences of horizontal mergers. I derive a welfare statistic that, within the context of the model, is free of structural parameters. The statistic allows for conclusions that generalize across different cost and demand conditions. I then show that exogenous forward contracting mitigates welfare loss but that endogenous forward contracting exacerbates welfare loss provided the relevant industry is sufficiently concentrated.

Pages: 11 pages
Date: 2013-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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