To Merge or to Help Related Firms Merge? Vertical Mergers in Cournot Oligopolies with Complementary Inputs

Consider a successive oligopoly where the production of a final good requires two complementary inputs: one essential input produced by a sole supplier and one generic input produced by oligopolistic suppliers. We compare the profitability of two strategies for the essential input supplier: one is t...

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Bibliographic Details
Published in經濟論文 Vol. 52; no. 1; pp. 1 - 35
Main Authors Wei-Jen Wen(溫偉任), Wen-Chieh Lee(李文傑), Vincent K. C. Chen(陳畊嘉)
Format Journal Article
LanguageChinese
Published 中央研究院經濟研究所 01.03.2024
Subjects
連續Cournot寡占
Successive Cournot oligopoly
互補要素
Complementary inputs
Vertical merger
垂直結合
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Summary:Consider a successive oligopoly where the production of a final good requires two complementary inputs: one essential input produced by a sole supplier and one generic input produced by oligopolistic suppliers. We compare the profitability of two strategies for the essential input supplier: one is to help related firms merge vertically; the other is to acquire a downstream firm itself. We show that it is in the interest of the essential input supplier to subsidize a fraction of firms in the market to merge vertically when there are few related firms, as these subsidized mergers can trigger further vertical mergers and lead to the maximum number of pairwise vertical mergers whereby the monopolistic supplier can grasp the bulk of the efficiency gains stemming from eliminating double marginalization. In contrast, it is more profitable for the essential input supplier to acquire a downstream firm and foreclose other downstream competitors when the number of related firms is large, as the subsidization required by
ISSN:1018-161X