Do Vertical Mergers Facilitate Upstream Collusion?

Volker Nocke and Lucy Martin ()
Additional contact information
Lucy Martin: Finance, Harvard Business School

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

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 which 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)
Pages: 40 pages
Date: 2003-11-17
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://economics.sas.upenn.edu/sites/default/file ... ng-papers/03-033.pdf (application/pdf)

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? (2004)
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:pen:papers:03-033

Access Statistics for this paper

More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC.
Bibliographic data for series maintained by Administrator ().