Abstract
The new U.S. Department of Justice and Federal Trade Commission Vertical Merger Guidelines focus on how vertical mergers are likely to affect static pricing incentives. While vertical mergers can create incentives to increase prices, they can also provide incentives to decrease prices. Which of the possible outcomes is likely to occur depends on details that are generally difficult to measure. Potential competition between dominant firms, the theory of potential harm to competition that the 1984 Department of Justice Merger Guidelines stressed, remains a more compelling rationale for blocking vertical mergers than the likely effect on static pricing incentives.
Highlights
The new United States Vertical Merger Guidelines1 (VMG) supersede the section on non-horizontal mergers in the U.S Department of Justice (“DOJ”) 1984 Merger Guidelines,2 the last merger guidelines that were issued by one of the U.S antitrust agencies that addressed non-horizontal mergers.3 When the DOJ issued those earlier guidelines, the dominant economic theories about vertical mergers were the1 3 Vol.:(0123456789)M
Even though a vertical merger results in complete foreclosure, meaning a newly-merged firm does not sell any intermediate input to other downstream firms, the equilibrium price of the input rises in some cases but
Some economists have argued that there is no basis in economic theory for a presumption that vertical mergers in concentrated markets pose less of a threat to competition than do horizontal mergers, and that the potential anticompetitive effect from a vertical merger is in effect the same as in a horizontal merger
Summary
Salinger single monopoly profit theorem and the Cournot/Spengler models of complementary and successive monopoly.5 The former laid out conditions under which vertical mergers are competitively neutral. In 2007, the European Commission issued non-horizontal merger guidelines.9 As input into those guidelines, it commissioned a working paper by Jeffrey Church to review the literature on the economic theory of the competitive effects of vertical mergers.. Until 2020, the US Agencies had not seen fit to issue new non-horizontal merger guidelines Their failure to do so did not reflect ignorance of the post-Chicago literature on vertical mergers. Even though a vertical merger results in complete foreclosure, meaning a newly-merged firm does not sell any intermediate input to other downstream firms, the equilibrium price of the input rises in some cases but
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