IDEAS home Printed from https://ideas.repec.org/a/kap/revind/v59y2021i2d10.1007_s11151-021-09827-w.html
   My bibliography  Save this article

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

Author

Listed:
  • Serge Moresi

    (Charles River Associates)

  • 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”) that are involved in two alternative types of acquisitions: (1) vertical mergers that raise unilateral input foreclosure concerns (and the associated vertical GUPPI measures); and (2) 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.

Suggested Citation

  • Serge Moresi & Steven C. Salop, 2021. "When Vertical is Horizontal: How Vertical Mergers Lead to Increases in “Effective Concentration”," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 177-204, September.
    • Handle: RePEc:kap:revind:v:59:y:2021:i:2:d:10.1007_s11151-021-09827-w
    DOI: 10.1007/s11151-021-09827-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11151-021-09827-w
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11151-021-09827-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Normann, Hans-Theo, 2009. "Vertical integration, raising rivals' costs and upstream collusion," European Economic Review, Elsevier, vol. 53(4), pages 461-480, May.
    2. Biancini, Sara & Ettinger, David, 2017. "Vertical integration and downstream collusion," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 99-113.
    3. Enghin Atalay & Ali Horta?su & Chad Syverson, 2014. "Vertical Integration and Input Flows," American Economic Review, American Economic Association, vol. 104(4), pages 1120-1148, April.
    4. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-685, Winter.
    5. Werden, Gregory J, 1996. "A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 409-413, December.
    6. Inderst, Roman & Valletti, Tommaso, 2011. "Incentives for input foreclosure," European Economic Review, Elsevier, vol. 55(6), pages 820-831, August.
    7. Volker Nocke & Lucy White, 2007. "Do Vertical Mergers Facilitate Upstream Collusion?," American Economic Review, American Economic Association, vol. 97(4), pages 1321-1339, September.
    8. Hausman, Jerry & Moresi, Serge & Rainey, Mark, 2011. "Unilateral effects of mergers with general linear demand," Economics Letters, Elsevier, vol. 111(2), pages 119-121, May.
    9. Pedro Mendi, 2009. "Backward integration and collusion in a duopoly model with asymmetric costs," Journal of Economics, Springer, vol. 96(2), pages 95-112, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. William P. Rogerson, 2021. "The Upstream Pass-Through Rate, Bargaining Power and the Magnitude of the Raising Rivals’ Costs (RRC) Effect," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 205-227, September.
    2. Nicolas Pasquier, 2024. "Decentralization and Consumer Welfare with Substitutes or Complements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 449-469, May.
    3. Federico Etro, 2023. "Hybrid Marketplaces with Free Entry of Sellers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(2), pages 119-148, March.
    4. Steven C. Salop, 2024. "The 2023 Merger Guidelines: A Post-Chicago and Neo-Brandeisian Integration," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 79-128, August.
    5. Javier D. Donna & Pedro Pereira, 2024. "Structural Presumptions for Non-horizontal Mergers in the 2023 Merger Guidelines: A Primer and a Path Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 303-345, August.
    6. Richard J. Gilbert & A. Douglas Melamed, 2024. "Potential Competition and the 2023 Merger Guidelines," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(1), pages 269-302, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Biancini, Sara & Ettinger, David, 2017. "Vertical integration and downstream collusion," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 99-113.
    2. Bet, Germán & Cui, Shana & Sappington, David E.M., 2021. "The impact of vertical integration on losses from collusion," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    3. Pouyet, Jérôme & Trégouët, Thomas, 2016. "Vertical Mergers in Platform Markets," CEPR Discussion Papers 11703, C.E.P.R. Discussion Papers.
    4. Éric Avenel & Stéphane Caprice, 2018. "Collusion et possibilité d’entrée en aval dans une industrie verticalement intégrée," Revue économique, Presses de Sciences-Po, vol. 69(1), pages 5-28.
    5. Mariana Cunha & Paula Sarmento, 2014. "Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 1-38, March.
    6. Möllers, Claudia, 2016. "Reputation and foreclosure with vertical integration: Experimental evidence," DICE Discussion Papers 232, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Martin, Simon & Rasch, Alexander, 2024. "Demand forecasting, signal precision, and collusion with hidden actions," International Journal of Industrial Organization, Elsevier, vol. 92(C).
    8. Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2019. "Anticompetitive Vertical Merger Waves," Journal of Industrial Economics, Wiley Blackwell, vol. 67(3-4), pages 484-514, September.
    9. Éric Avenel & Stéphane Caprice, 2012. "Collusion and downstream entry in a vertically integrated industry," Economics Working Paper Archive (University of Rennes & University of Caen) 201208, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    10. Jen-Yao Lee & Chen-Chia Fan & Chien-Shu Tsai, 2023. "Network Externalities and Downstream Collusion under Asymmetric Costs: A Note," Games, MDPI, vol. 14(2), pages 1-11, March.
    11. Jaideep Shenoy, 2021. "Firm vertical boundaries, internal capital markets, and firm performance," European Financial Management, European Financial Management Association, vol. 27(1), pages 59-97, January.
    12. Charistos, Konstantinos & Pinopoulos, Ioannis N. & Skartados, Panagiotis, 2022. "Passive forward ownership and upstream collusion," Economics Letters, Elsevier, vol. 216(C).
    13. Simon Loertscher & Markus Reisinger, 2014. "Market structure and the competitive effects of vertical integration," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 471-494, September.
    14. Milliou, Chrysovalantou, 2020. "Vertical integration without intrafirm trade," Economics Letters, Elsevier, vol. 192(C).
    15. Robert Clark & Ignatius Horstmann & Jean-François Houde, 2021. "Hub and Spoke Cartels: Theory and Evidence from the Grocery Industry," NBER Working Papers 29253, National Bureau of Economic Research, Inc.
    16. Villas-Boas, Sofia Berto, 2007. "Using Retail Scanner Data for Upstream Merger Analysis: Counterfactual Experiments in the Retail Coffee Market," CUDARE Working Papers 7163, University of California, Berkeley, Department of Agricultural and Resource Economics.
    17. Lee, Jen-Yao & Wang, Leonard F. S. & Sun, Ji, 2022. "Relative-performance delegation destabilizes upstream collusion," MPRA Paper 114939, University Library of Munich, Germany, revised 12 Oct 2022.
    18. Pedro Mendi & Rafael Moner-Colonques & José Sempere-Monerris, 2011. "Vertical integration, collusion, and tariffs," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 2(3), pages 359-378, September.
    19. S. Bolatto & L. Lambertini, 2017. "Collusive Vertical Relations," Working Papers wp1103, Dipartimento Scienze Economiche, Universita' di Bologna.
    20. Zhang, Vanessa Yanhua & Chen, Yongjun, 2011. "Vertical relationships in China’s electricity industry: The quest for competition?," Utilities Policy, Elsevier, vol. 19(3), pages 142-151.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:revind:v:59:y:2021:i:2:d:10.1007_s11151-021-09827-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.