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A note on horizontal mergers in vertically related industries

Author

Listed:
  • Marie-Laure Allain

    (Ecole Polytechnique, Department of Economics and CREST)

  • Saïd Souam

    (Université Paris 13 (CEPN) and CREST)

Abstract

We analyze horizontal mergers in vertically related industries. In a successive Cournot oligopoly model, we first compare the profitability of mergers in the upstream and in the downstream sectors. We characterize conditions on the concavities of the input supply function and the final demand function such that, ceteris paribus, an upstream merger is more protable than a downstream merger. We then provide a simple comparison of the relative losses of firms in an industry induced by a merger in the other sector when the degrees of concavity of the upstream and downstream demand functions are constant. We finally discuss the various mechanisms in action under non-constant degrees of concavity.

Suggested Citation

  • Marie-Laure Allain & Saïd Souam, 2011. "A note on horizontal mergers in vertically related industries," Economics Bulletin, AccessEcon, vol. 31(1), pages 156-166.
    • Handle: RePEc:ebl:ecbull:eb-10-00090
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    References listed on IDEAS

    as
    1. Fauli-Oller, Ramon, 1997. "On merger profitability in a Cournot setting," Economics Letters, Elsevier, vol. 54(1), pages 75-79, January.
    2. von Ungern-Sternberg, Thomas, 1996. "Countervailing power revisited," International Journal of Industrial Organization, Elsevier, vol. 14(4), pages 507-519, June.
    3. Ramón Faulí-Oller, 1997. "On merger profitability in a cournot setting," Working Papers. Serie AD 1997-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    horizontal mergers; vertically related industries; incentives to merge; elasticities of demand; loss from merger;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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