Horizontal mergers and supplier power
Perkins,Joe Shekhar,Shiva
Perkins,Joe
Shekhar,Shiva
Abstract
Supplier 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.
Description
Publisher Copyright: © The Author(s) 2024.
Date
2024-06
Journal Title
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Volume Title
Publisher
Research Projects
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Keywords
Antitrust, Merger analysis, Supplier power, Unilateral effects, Upward pricing pressure, Vertical relations, L44 - Antitrust Policy and Public Enterprises, Nonprofit Institutions, and Professional Organizations, L42 - Vertical Restraints ; Resale Price Maintenance ; Quantity Discounts
Citation
Perkins, J & Shekhar, S 2024, 'Horizontal mergers and supplier power', Review of Industrial Organization, vol. 64, no. 4, pp. 533-548. https://doi.org/10.1007/s11151-024-09947-z