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Horizontal Mergers and Supplier Power

Published version
Peer-reviewed

Repository DOI


Change log

Authors

Perkins, Joe 

Abstract

jats:titleAbstract</jats:title>jats:pSupplier market power—such as the ability of branded goods suppliers to dictate terms to retailers—is an important feature of many markets. We show that supplier power can counteract the effects of downstream mergers on consumer prices where there are two-part contracts. This is because greater market power allows suppliers to set contracts that internalise partially the impact of the merger on downstream prices. Post-merger, the supplier reduces the per-unit price at which it supplies the merged downstream firms, with the aim of maintaining total industry profitability—and then recoups the profits via a larger fixed fee. We modify the standard upward pricing pressure (UPP) formula to account for the supplier’s response to a horizontal merger in the downstream market, while preserving much of the simplicity of the standard approach.</jats:p>

Description

Funder: Compass Lexecon

Keywords

38 Economics, 3801 Applied Economics

Journal Title

Review of Industrial Organization

Conference Name

Journal ISSN

0889-938X
1573-7160

Volume Title

64

Publisher

Springer Science and Business Media LLC