Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, September 1, 2011

Horizontal Mergers in Multi-Tier Decentralized Supply Chains

Posted by D. Daniel Sokol

Soo-Haeng Cho, Carnegie Mellon University - Tepper School of Business has a paper on Horizontal Mergers in Multi-Tier Decentralized Supply Chains.

ABSTRACT: We study the effects of a horizontal merger in multi-tier decentralized supply chains where different numbers of firms compete at each tier. Two common effects of a horizontal merger are analyzed: the competition effect caused by reduced competitive intensity, and the synergy effect of merging firms through marginal cost reduction. Our analysis shows that the synergy effect and the competition effect often change pre-merger quantities, prices, and profits in opposite directions, so that the aggregate merger effect is non-monotonic. For non-monotonic cases, we provide the conditions under which a merger increases or decreases pre-merger outcomes. Importantly, we find that many of those conditions differ depending on the position in the supply chain where a merger occurs. In particular, a consumer price is less likely to fall after a merger, ceteris paribus, (1) when a merger occurs in a downstream tier rather than in an upstream tier, and (2) when a merger occurs in a vertically disintegrated market rather than in a vertically integrated market.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/09/horizontal-mergers-in-multi-tier-decentralized-supply-chains.html

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