Downstream merger with oligopolistic input suppliers

Kjell Lommerud (), Odd Rune Straume and Lars Sørgard

No FS IV 01-22, Discussion Papers, various Research Units from WZB Berlin Social Science Center

Abstract: We examine how a downstream merger affects input prices and, in turn, the profitability of such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.

Keywords: merger profitability; input suppliers; trade unions; cross-border merger (search for similar items in EconPapers)
JEL-codes: J51 L13 L41 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (1)

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Working Paper: Downstream Merger with Oligopolistic Input Suppliers (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbdiv:fsiv0122

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