Friday, April 3, 2009
Posted by D. Daniel Sokol
Robert Steiner analyzes Vertical Competition, Horizontal Competition and Market Power in the Antitrust Bulletin.
ABSTRACT: Buyer power is the subject of this special issue. Buyer power is one of a series of interrelated vertical and horizontal competitive forces at different stages that together determine market power. Horizontal competition takes place between firms at the same stage and vertical competition between firms at successive stages. Buyer power is exercised in vertical upstream competition and seller power in vertical downstream competition.
In the industry to be analyzed, consumer goods manufacturers buy from suppliers and sell to retailers who resell to household consumers. Unfortunately, horizontal and vertical competition (where its existence has been acknowledged) have been probed separately using different economic tools--competition theory in the first instance and bargaining theory in the second. This article develops a unified theoretical framework to estimate market power in consumer goods industries with differentiated products. It integrates horizontal and vertical competition into a common analysis in which the two forms of competition are shown to be positively correlated in a chicken and egg relationship.