Wednesday, March 24, 2010

Vertical Merger, Collusion, and Disruptive Buyers

Posted by D. Daniel Sokol

Volker Nocke, Department of Economics, University of Oxford - Department of Economics and Lucy White, Harvard Business School - Finance Unit, Swiss Finance Institute, determine the relationship among Vertical Merger, Collusion, and Disruptive Buyers.

ABSTRACT: In a repeated game setting of a vertically related industry, we study the collusive effects of vertical mergers. We show that any vertical merger facilitates upstream collusion, no matter how large (in terms of capacity or size of product portfolio) the integrated downstream buyer. But a vertical merger with a larger buyer helps more to facilitate upstream collusion than a similar merger with a smaller buyer. This formalizes the idea expressed in the U.S. and EU non-horizontal merger guidelines that some downstream buyers may be more "disruptive" of collusive schemes than others.

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