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Vertical Integration, Market Consolidation, and Economic Welfare

In: The Law and Economics of Patent Damages, Antitrust, and Legal Process

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  • Dennis L. Weisman
  • Soheil R. Nadimi

Abstract

We examine a setting in which a vertically integrated provider (VIP) initially has a duty to deal with an independent rival at unregulated upstream and downstream prices. The duty to deal is subsequently terminated which enables the VIP to acquire the independent rival (or the expertise necessary to produce the rival's product) and then serve as a two-product monopolist in the downstream market. We find that the refusal to deal decreases rivalry but increases economic efficiency and is therefore presumptively “pro-competitive.” The paramount policy question concerns whether a refusal to deal that eliminates a rival and monopolizes the downstream market while increasing static efficiency should be considered a violation of Section 2 of the Sherman Act. This analysis also has implications for policies governing the unbundling of next-generation telecommunications networks.

Suggested Citation

  • Dennis L. Weisman & Soheil R. Nadimi, 2021. "Vertical Integration, Market Consolidation, and Economic Welfare," Research in Law and Economics, in: The Law and Economics of Patent Damages, Antitrust, and Legal Process, volume 29, pages 55-67, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rlwezz:s0193-589520210000029004
    DOI: 10.1108/S0193-589520210000029004
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    More about this item

    Keywords

    Vertical integration; duty to deal; efficiency; antitrust; regulation; consumer welfare; L51; L96;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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