Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76014 
Year of Publication: 
2002
Series/Report no.: 
CESifo Working Paper No. 740
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper studies the welfare consequences of a vertical merger that raises rivals‘ costs when downstream competition is à la Cournot between firms with constant asymmetric marginal costs. The main result is that such a vertical merger can nevertheless improve welfare if it involves a downstream firm whose cost is “low enough“. This is because by raising the input price paid by the non-merging firms the merger thereby shifts production away from those relatively inefficient producers in favor of the more efficient firm. However there is a tradeoff between the gain in productive efficiency and the loss in consumers‘ surplus caused by a higher downstream price which follows a higher input price. It is also shown, through an example, that this result extends to price competition with differentiated products.
Subjects: 
foreclosure
raising rival costs
Cournot
welfare
asymmetric costs
Document Type: 
Working Paper
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