Downstream mergers in a vertically differentiated unionized oligopoly

Borja Mesa Sánchez ()
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Borja Mesa Sánchez: Dpto. Fundamentos del Análisis Económico
Authors registered in the RePEc Author Service: Borja Mesa-Sánchez

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

Abstract: In the context of an international unionized oligopoly, with vertical differentiation and downstream and upstream firms locked in a bilateral monopoly, the pattern of downstream mergers is investigated. In such a setting, a downstream merger leads to a reduction in the price of the inputs. Such reduction is greater the more homogeneous the participants’ products are. However, it turns out that most of the market structure equilibria consist of mergers among differentiated producers. I find that firms’ strategic behaviour impedes mergers between similar producers, avoiding that input prices fall to their marginal costs. Given that firms can be harmed by rivals’ mergers, through the important reduction in input prices that those trigger, an scenario of preemptive mergers emerges. A brief social welfare analysis is also presented. It is shown that the market structure outcome is never socially optimal, neither in terms of consumer surplus nor social welfare. Nevertheless, the optimum could be achieved if antitrust authorities block some strategic mergers, precisely those involving more than two firms.

Keywords: mergers; vertical differentiation; unionized oligopoly (search for similar items in EconPapers)
JEL-codes: J51 L13 L15 L41 L44 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-10
New Economics Papers: this item is included in nep-com and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2010-31

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