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DOWNSTREAM MERGERS AND ENTRY

Ramón Faulí-Oller () and Joel Sandonis
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Ramón Faulí-Oller: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: We consider an upstream firm selling an input to several downstream firms through observable two-part tariff contracts. Downstream firms can alternatively buy the input from a less efficient source of supply. We show that downstream mergers lead to lower wholesale prices. They translate into lower final prices only when the alternative supply is inefficient enough. Downstream mergers are very profitable in this setting and monopolization is the equilibrium outcome of a merger game even for unconcentrated markets. Finally, the expectation of monopolization stimulates wasteful entry of downstream firms in the industry, which calls for policy intervention.

Keywords: downstream mergers; entry; two-part tariff contracts (search for similar items in EconPapers)
JEL-codes: L11 L13 L14 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-11
New Economics Papers: this item is included in nep-com, nep-ent and nep-ind
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http://www.ivie.es/downloads/docs/wpasad/wpasad-2007-21.pdf Fisrt version / Primera version, 2007 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2007-21

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