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Konstantinos Charistos, Christos Constantatos and Ioannis N. Pinopoulos
''Downstream horizontal mergers and wholesale price discrimination''
( 2020, Vol. 40 No.4 )
This paper provides a theoretical model that highlights the fact that market power and/or efficiency gains associated with a downstream merger create asymmetries between merged and non-merged firms, which in turn may lead an upstream supplier to engage in price discrimination. We consider a supply chain with one supplier and three differentiated retailers that compete in a Cournot-Nash fashion. Trade is conducted via observable two-part tariffs. We assume that two retailers decide to merge. Pre-merger, all retailers obtain the same marginal wholesale price since they are identical. Post-merger, the larger merged entity – because it is more cost-efficient and it is endowed with a larger product portfolio – obtains a lower marginal wholesale price than its non-merged rival. Allocative efficiency increases and, different from existing merger theory in one-tier markets, the merger always increases consumer surplus and total welfare regardless of the magnitude of the efficiency gains.
Keywords: Vertical relations; Horizontal mergers; Wholesale price discrimination; Market power; Efficiency gains; Welfare
JEL: L4 - Antitrust Issues and Policies: General
L2 - Firm Objectives, Organization, and Behavior: General
Manuscript Received : Sep 01 2020 Manuscript Accepted : Nov 27 2020

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