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Successive Monopoly, Bilateral Monopoly and Vertical Mergers

Author

Listed:
  • Tirza J. Angerhofer

    (Duke University
    University of Florida)

  • Roger D. Blair

    (University of Florida
    University of Florida)

Abstract

The 2020 Vertical Merger Guidelines set out the enforcement policy of the Department of Justice and the Federal Trade Commission with regard to vertical mergers. The evaluation process centers on the elimination of double marginalization, raising rivals’ costs, and market foreclosure. The Agencies recognize that merger-specific efficiencies may save an otherwise objectionable merger. In this paper, our focus is on the welfare effects of vertical mergers in the presence of successive monopoly and bilateral monopoly. In both cases, a vertical merger is welfare enhancing, but the benefits may not be merger specific. We illustrate this proposition by examining contractual alternatives to vertical integration by merger. We argue that vertical integration may eliminate substantial transaction costs which are present in contractual alternatives. Consequently, a vertical merger may well be superior to these contractual alternatives.

Suggested Citation

  • Tirza J. Angerhofer & Roger D. Blair, 2021. "Successive Monopoly, Bilateral Monopoly and Vertical Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 343-361, September.
    • Handle: RePEc:kap:revind:v:59:y:2021:i:2:d:10.1007_s11151-021-09825-y
    DOI: 10.1007/s11151-021-09825-y
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Marissa Beck & Fiona Scott Morton, 2021. "Evaluating the Evidence on Vertical Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 273-302, September.
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    9. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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    Cited by:

    1. Roger D. Blair, 2021. "The 2020 Vertical Merger Guidelines," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 133-138, September.
    2. Roger D. Blair & Christine Piette Durrance, 2024. "Illumina-GRAIL in Retrospect," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 347-360, August.

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