Antitrust & Competition Policy Blog

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

Wednesday, September 12, 2018

Simulating Mergers in a Vertical Supply Chain with Bargaining

Gloria Sheu (U.S. Department of Justice) and Charles Taragin (U.S. Department of Justice) are Simulating Mergers in a Vertical Supply Chain with Bargaining.

ABSTRACT: We model a two-level supply chain where Nash bargaining occurs upstream, while firms compete in a differentiated products logit setting downstream. The parameters of this model can be calibrated with a discrete set of data on prices, margins, and market shares. Using a series of numerical experiments, we illustrate how the model can simulate the outcome of both horizontal and vertical mergers. In addition, we extend the framework to allow for downstream competition via a second score auction.

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