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Downstream Mergers And Entry

Author

Listed:
  • Ramón Faulí-Oller

    (Universidad de Alicante)

  • Joel Sandonís

    (Universidad de Alicante)

Abstract

We consider an upstream firm selling an input to several downstream firms through observable two-part tariff contracts. Downstream firms can alternatively buy the input from a less efficient source of supply. We show that downstream mergers lead to lower wholesale prices. They translate into lower final prices only when the alternative supply is inefficient enough. Downstream mergers are very profitable in this setting and monopolization is the equilibrium outcome of a merger game even for unconcentrated markets. Finally, the expectation of monopolization stimulates wasteful entry of downstream firms in the industry, which calls for policy intervention.

Suggested Citation

  • Ramón Faulí-Oller & Joel Sandonís, 2007. "Downstream Mergers And Entry," Working Papers. Serie AD 2007-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2007-21
    as

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2007-21.pdf
    File Function: Fisrt version / Primera version, 2007
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.
    2. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.

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    More about this item

    Keywords

    downstream mergers; entry; two-part tariff contracts;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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