Buyer power of retailers with limited selling capacity

We have two upstream firms producing each one a different good. Demands of the goods are independent, symmetric and linear. Goods are sold to consumers through retailers. The units of both goods sold by retailers cannot exceed the industry selling capacity that it is distributed symmetrically among retailers. Taking as given the industry selling capacity, when the number of retailers decreases, they become bigger in the sense that their selling capacity increases. Therefore, changing the number of retailers, we can check whether the countervailing power theory, that states that bigger retailers obtain better deals from suppliers, holds in our model. We obtain that the lower the number of retailers, the lower the wholesale prices, only when the industry selling capacity is high.I acknowledge financial support from the Spanish Ministerio de Economía y Competitividad and FEDER funds ECO2015-65820-P (MINECO/FEDER) and from Generalitat Valenciana grant PROMETEO/2019/037

Divisionalization with asymmetric production costs

We study a standard duopoly model of simultaneous divisionalization and Cournot competition, assuming that firms have different marginal costs and divisions are costless. We obtain that in equilibrium only the divisions of the efficient firm are active because price is equal to the marginal cost of the inefficient firm. In the sequential case, however, this “entry-deterrence” strategy is only profitable for the efficient firm when its cost advantage is important enough. So in our setting, both firms coexist in equilibrium only when the cost difference is small enough and divisions are chosen sequentially.Financial support from the Spanish Ministry of Economic Competitiveness (PID2019-107081GB-I00), and Generalitat Valenciana (Research Project Groups 3/086, Prometeo/2021/073) is gratefully acknowledged

To Merge or to License: Implications for Competition Policy

The optimal merger policy when efficiency gains are not merger specific but can also be achieved through licensing is derived in a differentiated goods Cournot duopoly. We show that whenever both royalties and fees are feasible instruments to license technology, mergers should not be allowed, which fits the prescription of the U.S. Horizontal Merger Guidelines. When only one instrument is feasible, however, the possibility of licensing cannot be used as a definitive argument against mergers.

Horizontal mergers for buyer power

Salant et al. (1983) showed in a Cournot setting that horizontal mergers are unprofitable because outsiders react by increasing their output. We show that this negative effect may be compensated by the positive effect that horizontal mergers have on the buyer power of merging firms in input markets.

Mergers in Asymmetric Stackelberg Markets

It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.Mergers, Asymmetries, Stackelberg

Fee versus royalty licensing in a Cournot duopoly with increasing marginal costs

We consider a symmetric homogeneous Cournot duopoly operating under increasing marginal costs. One of the firms owns a patented superior technology that reduces the intercept of the marginal cost function. We compare the incentives of the insider patentee to license the technology to the rival firm either through a fixed fee or through a royalty. We obtain that royalty licensing does not necessarily dominates in our setting: when decreasing returns are important, a royalty is superior only for small enough innovations, whereas a fixed fee is chosen for large innovations. Aditionally, we show that our model is able to replicate the results in Wang (2002), which analyzes the same question in a differentiated duopoly with constant marginal costs.Financial support from the Spanish Ministry of Economic Competitiveness (PID2019-107081GB-I00), and Generalitat Valenciana (Research Project Groups 3/086, Prometeo/2021/073) is gratefully acknowledged

Welfare effects of downstream mergers and upstream market concentration

We consider a dominant upstream firm selling an input to several downstream firms through observable, non-discriminatory two-part tariff contracts. Downstream firms can alternatively buy the input from a less efficient source of supply. In this setting, we analyze the relationship between the competitive effects of downstream mergers and the level of concentration at the upstream level. We show that a downstream merger leads to lower wholesale prices. This translates into lower final prices only when the upstream market is sufficiently concentrated. In this case, a downstream merger tends to be both procompetitive and profitable.Financial support from Ministerio de Ciencia e Innovación and FEDER funds under project SEJ 2007-62656, from Spanish Ministerio de Economía y Competitividad under project ECO2012-34928 and the IVIE is gratefully acknowledged

Buyer power, product assortment and asymmetric retail formats

We consider two manufacturers producing two symmetric and independent goods. They sell them through two undifferentiated retailers (homogeneous retailers). Manufacturers propose linear contracts. Before supply contracts are set by producers, retailers decide whether to be a multi‐product retailer by carrying the two goods or a single product retailer and sell only one good. In this symmetric setting, we find asymmetric retail formats in equilibrium, which results in lower total welfare compared to a situation where both retailers would be multi‐product retailers.We acknowledge financial support from the Spanish Ministerio de Economía y Competitividad and FEDER funds ECO2015-65820-P (MINECO/FEDER) and from Generalitat Valenciana grant PROMETEO/2019/037

Restriction of selling capacity by a retailer

We consider two symmetric upstream firms producing independent goods that sell to consumers through a common retailer. The distinguishing feature of the retailer is that she has a selling capacity, in the sense, that there is an upper limit in the total units of the two goods she can sell. We obtain that the retailer has incentives to reduce her selling capacity in order to increase the pay-off she obtains in the vertical structure.I acknowledge financial support from the Spanish Ministerio de Economía y Competitividad and FEDER funds ECO2015-65820-P (MINECO/FEDER) and from Generalitat Valenciana grant PROMETEO/2013/037

Merger Policy in R&D Intensive Industries

We analyze merger policy in an industry where firms participate in a non-tournament R&D competition. We conclude that merger policy should be, in general, less restrictive in high technology markets (pharmaceuticals and telecoms), because mergers reduce the wasteful duplication of R&D expenditures. However, merger policy should become more strict in (very) asymmetric market structures. In this case, competition provides incentives for R&D, but, at the same time, duplication is avoided.Fauli-Oller gratefully acknowledges financial support from the Spanish Ministerio de Economía y Competitividad and FEDER funds ECO2015-65820-P (MINECO/FEDER), from Generalitat Valenciana grant PROMETEO/2013/037 and the IVIE. Part of this research was written when Fauli-Oller was visiting the Institut d’Anàlisi Econòmica, CSIC