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Suppliers' merger and consumers' welfare

Eric Avenel

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Abstract: This article explores the consequences of a suppliers' merger on consumers' welfare when the product is sold to consumers by independent retailers competing à la Cournot. The literature shows that under the standard assumptions of private contracting and passive beliefs, there is no impact at all. I show that this unintuitive result strongly depends on the implicit assumption that suppliers have infinite capacities of production. Indeed, assuming that suppliers face a capacity constraint and that retailers hold out-of-equilibrium beliefs compatible with this constraint, I show that the merger raises the price on the final market and reduces consumers' welfare.

Keywords: vertical contracting; opportunism; horizontal merger; capacity constraint (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

Published in Ekonomia Międzynarodowa, 2012, 15 (1), pp.1-21

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