Horizontal Mergers in the Presence of Vertical Relationships

37 Pages Posted: 24 Nov 2014

See all articles by Arghya Ghosh

Arghya Ghosh

UNSW Australia Business School, School of Economics

Hodaka Morita

Hitotsubashi University - Institute of Economic Research

Chengsi Wang

Department of Economics, University of Mannheim

Date Written: November 23, 2014

Abstract

We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from cost-inefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

Keywords: merger, successive oligopoly, welfare, reallocation, rationalization

JEL Classification: L13, L41, L42

Suggested Citation

Ghosh, Arghya and Morita, Hodaka and Wang, Chengsi, Horizontal Mergers in the Presence of Vertical Relationships (November 23, 2014). Available at SSRN: https://ssrn.com/abstract=2529687 or http://dx.doi.org/10.2139/ssrn.2529687

Arghya Ghosh

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Hodaka Morita

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Chengsi Wang (Contact Author)

Department of Economics, University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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