Antitrust & Competition Policy Blog

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

Friday, May 14, 2021

When Vertical is Horizontal: How Vertical Mergers Lead to Increases in 'Effective Concentration'

When Vertical is Horizontal: How Vertical Mergers Lead to Increases in 'Effective Concentration'

Serge Moresi

Charles River Associates (CRA)

Steven C. Salop

Georgetown University Law Center

Abstract

This article explains the inherent loss of an indirect competitor and reduction in competition when a vertical merger raises input foreclosure concerns. We then calculate a measure of the effective increase in the HHI measure of concentration for the downstream market, and we refer to this “proxy” measure as the “dHHI.” We derive the dHHI measure by comparing the pricing incentives and associated upward pricing pressure (“UPP”) involved in two alternative types of acquisitions: (i) vertical mergers that raise unilateral input foreclosure concerns (and the associated vertical GUPPI measures), and (ii) horizontal acquisitions of partial ownership interests among competitors that raise unilateral effects concerns (and the associated modified GUPPI and modified HHI measures). This dHHI measure can be a useful tool for vertical merger analysis.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/05/when-vertical-is-horizontal-how-vertical-mergers-lead-to-increases-in-effective-concentration.html

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