Monopolization Through Endogenous Vertical Mergers

6 Pages Posted: 12 Feb 2016

See all articles by Gamal Atallah

Gamal Atallah

University of Ottawa - Department of Economics

Date Written: June 11, 2007

Abstract

While endogenous merger analysis has been applied to horizontal mergers, the thrust of vertical merger analysis has been based on exogenous mergers. The goal of this paper is to analyze endogenous vertical mergers. I consider a market structure with a downstream monopolist and an oligopolistic upstream industry. The downstream monopolist chooses to buy a certain number of the upstream firms. Mergers are endogenous, in the sense that the bids made by the downstream firm must be accepted by each of the integrated upstream firms, and must not exceed the increase in the profits of the downstream firm. It is shown that the unique equilibrium is complete monopolization: the buyer buys all the firms in the upstream industry. This result is consistent with the result that vertical mergers are profitable. However, it is in contrast with horizontal endogenous mergers, where complete monopolization is generally not an equilibrium.

Keywords: Endogenous mergers, Vertical integration, Monopolization

JEL Classification: D43, L13, L22

Suggested Citation

Atallah, Gamal, Monopolization Through Endogenous Vertical Mergers (June 11, 2007). Research In Economics , Vol. 61, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=2731242

Gamal Atallah (Contact Author)

University of Ottawa - Department of Economics ( email )

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