Bargaining Competition and Vertical Mergers

33 Pages Posted: 1 Mar 2021 Last revised: 31 Mar 2021

See all articles by Willem H. Boshoff

Willem H. Boshoff

Stellenbosch University - Department of Economics - Centre for Competition Law and Economics

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Roan Minnie

Stellenbosch University - Department of Economics - Centre for Competition Law and Economics

Steven Tschantz

Vanderbilt University - Department of Mathematics

Date Written: March 31, 2021

Abstract

A vertical merger model represents a complex system built on (i) a network of e.g., upstream manufacturers and downstream retailers (ii) who bargain bilaterally in the presence of externalities (iii) created by competition between downstream retailers (iv) facing a consumer demand surface. We simulate the effects of vertical mergers in six different bargaining models and and that how parties bargain, and over what, can almost pre-determine merger effects. This paper is accompanied by an online vertical merger simulator designed to help economists and enforcers simulate vertical mergers, similar to existing horizontal merger simulators. By showing what matters, why it matters, and how much it matters, these tools guide model building. We introduce the rectangular logit demand system for this application, with nests around the same goods sold at different retailers, or around different goods sold at the same retailer.

Keywords: Bargaining, Vertical Merger, Nash-in-Nash, Nash-in-Shapley, rectangular logit demand, nested logit demand.

JEL Classification: C78, D86, L14, L42

Suggested Citation

Boshoff, Willem H. and Froeb, Luke M. and Minnie, Roan and Tschantz, Steven T., Bargaining Competition and Vertical Mergers (March 31, 2021). Available at SSRN: https://ssrn.com/abstract=3760634 or http://dx.doi.org/10.2139/ssrn.3760634

Willem H. Boshoff

Stellenbosch University - Department of Economics - Centre for Competition Law and Economics ( email )

South Africa
+27218082387 (Phone)

HOME PAGE: http://ccle.sun.ac.za

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Roan Minnie (Contact Author)

Stellenbosch University - Department of Economics - Centre for Competition Law and Economics ( email )

Private Bag X1
Matieland, 7602
South Africa

Steven T. Tschantz

Vanderbilt University - Department of Mathematics ( email )

Nashville, TN 37240
United States

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