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Portfolio Effects and Merger Control: Full-line Forcing as an Entry Deterrence Strategy

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  • Thibaud Vergé

    (University of Southampton)

Abstract

The ''portfolio effect theory'' developed by the European Commission in merger control is at the center of a fierce international row with the US authorities who believe that this theory has no economic foundations. This paper aims to provide a counter-argument and shows that full-line forcing may be used by the holder a comprehensive range of products as an entry deterrence device to maintain its monopoly power. However, due to buyer power on the retail market, this will happen only if entry is not profitable for the industry as a whole. The effects on consumer welfare are ambiguous. Full-line forcing will reduce prices in the first period, but as it helps maintaining monopoly power, is harmful in the long-term.

Suggested Citation

  • Thibaud Vergé, 2003. "Portfolio Effects and Merger Control: Full-line Forcing as an Entry Deterrence Strategy," Industrial Organization 0301010, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0301010
    Note: Type of Document - Pdf; prepared on PC-ScientificWord; to print on Postscript; pages: 24 ; figures: included
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0301/0301010.pdf
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    References listed on IDEAS

    as
    1. Shaffer, Greg, 1991. "Capturing Strategic Rent: Full-Line Forcing, Brand Discounts, Aggregate Rebates, and Maximum Resale Price Maintenance," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 557-575, September.
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    3. Margaret E. Slade, 1998. "The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 204-222, October.
    4. Barry Nalebuff, 2000. "Competing Against Bundles," Yale School of Management Working Papers ysm157, Yale School of Management.
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    6. Margaret E. Slade, 1998. "The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 204-222, October.
    7. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
    8. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 159-187.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Portfolio effects; competition policy; full-line forcing; entry deterrence.;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies

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