Tethering Vertical Merger Analysis

13 Pages Posted: 31 Mar 2022

Date Written: March 18, 2022


Antitrust practitioners are mis-applying simple vertical merger screening techniques (e.g., vertical foreclosure arithmetic, price pressure analysis) to reach flawed and internally inconsistent conclusions about vertical mergers. Specifically, practitioners have struck on a formula for claiming harm from vertical mergers: They argue that relatively low upstream margins mean that, post-merger, the merged firm has an incentive to disadvantage rivals’ access to the upstream product thus driving more sales to the merged firm’s relatively more profitable downstream product. This reasoning is backwards in the same way that standard critical loss analysis was backwards when it concluded that large pre-merger margins make harm from horizontal mergers less likely. A low upstream profit share implies that the upstream firm faces significant competition and likely lacks the ability to foreclose competition, whereas a high upstream profit share admits foreclosure as a possibility (though by no means a certainty). This paper discusses the issues and touches on how to fix them, a topic addressed in more detail in a forthcoming companion paper.

Keywords: Vertical Mergers, Foreclosure, Raising Rivals' Costs, Vertical Math

JEL Classification: D42, D86, L12, L42

Suggested Citation

O'Brien, Daniel P., Tethering Vertical Merger Analysis (March 18, 2022). Available at SSRN: https://ssrn.com/abstract=4061410 or http://dx.doi.org/10.2139/ssrn.4061410

Daniel P. O'Brien (Contact Author)

Microfoundations ( email )

14250 Hansel Ave
Truckee, CA 96161
United States

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