Input-Price Responses to Horizontal Mergers and the Bargaining-Leverage Defense

68 Pages Posted: 15 Apr 2022 Last revised: 11 Apr 2024

See all articles by Rebekah Dix

Rebekah Dix

Massachusetts Institute of Technology (MIT)

Todd Lensman

Massachusetts Institute of Technology (MIT)

Date Written: September 1, 2022

Abstract

We study the implications of endogenous input prices for horizontal merger policy when input prices are set before goods prices. Generalizing the first-order approach of Farrell and Shapiro (2010) and Jaffe and Weyl (2013), we derive a measure of unilateral incentives to adjust input prices after a downstream merger, Input Pricing Pressure. We use this measure to show that mergers often incentivize higher input prices, and that these incentives hinge on changes in downstream pass-through rates and marginal cost efficiencies generated by the merger. By implication, consumer surplus-maximizing antitrust policy may be too lax when input prices are assumed fixed, and it should be biased against claims that input prices will fall after a downstream merger. In an empirical application to local retail beer markets, endogenizing input prices substantially raises the consumer harm from mergers of retailers.

Keywords: antitrust, buyer power, vertical relationships

Suggested Citation

Dix, Rebekah and Lensman, Todd, Input-Price Responses to Horizontal Mergers and the Bargaining-Leverage Defense (September 1, 2022). Available at SSRN: https://ssrn.com/abstract=4074160 or http://dx.doi.org/10.2139/ssrn.4074160

Rebekah Dix (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Todd Lensman

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://toddlensman.com

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