Aaditya Mattoo

"Can no competition policy be better than some competition policy?"

JEL codes: L13, L40; L41; L42
Keywords: Oligopoly; vertical merger; horizontal merger; antitrust policy

Abstract:  This paper examines how the market structure is likely to evolve in a situation of multi-stage oligopolistic production. The decision to merge across or within stages of production is treated as endogenous. It is shown that when firms at a particular stage of production are relatively dominant, simultaneous merger decisions are conducive to competitive vertically integrated outcomes while sequential decisions are not. The persistence of non-integrated market structures may be explained by the existence of equally dominant firms which make merger decisions sequentially. The credible threat of retaliatory merger may deter both socially desirable and undesirable forms of merger. Inferences are drawn for the design of competitive policy.