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Rivals’ Exit and Vertical Merger Evaluation

Author

Listed:
  • Javier D. Donna

    (University of Florida)

  • Pedro Pereira

    (Instituto Universitário de Lisboa)

Abstract

We discuss a subset of vertical mergers, where the exercise of market power and the efficiencies enabled by a vertical merger reduce rivals’ profits, making rivals’ exit a potentially serious concern. Rivals’ exit can fundamentally alter the welfare analysis of vertical mergers due to the reduction in product variety to consumers and the reduction in the number of competitors that would otherwise exert downward pricing pressure. An exit-inducing vertical merger might reduce welfare even if it is a welfare-enhancing merger absent exit. We present a theoretical framework to analyze vertical mergers that focuses on the possibility and consequences of exit, discuss the antitrust implications for merger evaluation, and provide examples. We argue that the possibility of rivals’ exit should be an integral part of the analysis of vertical mergers.

Suggested Citation

  • Javier D. Donna & Pedro Pereira, 2023. "Rivals’ Exit and Vertical Merger Evaluation," Working Papers 225, Red Nacional de Investigadores en Economía (RedNIE).
  • Handle: RePEc:aoz:wpaper:225
    as

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    File URL: https://rednie.eco.unc.edu.ar/files/DT/225.pdf
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    References listed on IDEAS

    as
    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. Chiara Fumagalli & Massimo Motta, 2006. "Exclusive Dealing and Entry, when Buyers Compete," American Economic Review, American Economic Association, vol. 96(3), pages 785-795, June.
    3. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. 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.

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    More about this item

    Keywords

    Antitrust; Vertical Mergers; Rivals’ Exit; Double Marginalization; Merger Evaluation; Competition Policy.;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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