Wednesday, January 28, 2015

Horizontal Mergers in the Presence of Vertical Relationships

Arghya Ghosh, UNSW Australia Business School, School of Economics, Hodaka Morita, University of New South Wales - School of Economics, and Chengsi Wang, Department of Economics, University of Mannheim theorize about Horizontal Mergers in the Presence of Vertical Relationships.

ABSTRACT: We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from cost-inefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

| Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference Horizontal Mergers in the Presence of Vertical Relationships:


Post a comment