Upstream Mergers with Divestitures in Vertical Markets

Upstream Mergers with Divestitures in Vertical Markets

 

Yann Delaprez

European University Institute

Morgane Guignard

Institut Polytechnique de Paris

Abstract

This paper analyses a large upstream joint venture with divestiture in the French coffee market. Contrary to previous approaches used to study the effect of upstream divestiture on prices and economic welfare, we model the vertical market structure. First, we show that divestiture can lead to marginal cost savings for the buyer of the divested brand. Second, our results reveal that, accounting for upstream bargaining, the standard policy recommendation corresponding to request divestiture to small recipient firms might not hold.