When Vertical is Horizontal: How Vertical Mergers Lead to Increases in 'Effective Concentration'

28 Pages Posted: 18 Feb 2021

See all articles by Serge Moresi

Serge Moresi

Charles River Associates (CRA)

Steven C. Salop

Georgetown University Law Center

Date Written: December 26, 2020


This article explains the inherent loss of an indirect competitor and reduction in competition when a vertical merger raises input foreclosure concerns. We then calculate a measure of the effective increase in the HHI measure of concentration for the downstream market, and we refer to this “proxy” measure as the “dHHI.” We derive the dHHI measure by comparing the pricing incentives and associated upward pricing pressure (“UPP”) involved in two alternative types of acquisitions: (i) vertical mergers that raise unilateral input foreclosure concerns (and the associated vertical GUPPI measures), and (ii) horizontal acquisitions of partial ownership interests among competitors that raise unilateral effects concerns (and the associated modified GUPPI and modified HHI measures). This dHHI measure can be a useful tool for vertical merger analysis.

Keywords: Vertical Mergers, Horizontal Transactions, Input Foreclosure, Market Concentration

Suggested Citation

Moresi, Serge and Salop, Steven C., When Vertical is Horizontal: How Vertical Mergers Lead to Increases in 'Effective Concentration' (December 26, 2020). Available at SSRN: https://ssrn.com/abstract=3761372 or http://dx.doi.org/10.2139/ssrn.3761372

Serge Moresi

Charles River Associates (CRA) ( email )

1201 F Street, NW
Suite 700
Washington, DC 20004
United States
(202)662-3847 (Phone)

Steven C. Salop (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
202-662-9095 (Phone)
202-662-9497 (Fax)

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