VERTICAL MERGERS AND MARKET FORECLOSURE

Pages445-458
Publication Date01 Jul 2004
DOIhttps://doi.org/10.1016/S0193-5895(04)21008-9
AuthorWilliam S. Comanor,Patrick Rey
VERTICAL MERGERS AND
MARKET FORECLOSURE
William S. Comanor and Patrick Rey
ABSTRACT
In recent years, antitrust officials have recognizedthat vertical arrangements
can cause competitive harm through two routes: first, they can facilitate
collusion among rivals, and second, they can raise rivals’ costs and thereby
create barriers to entry or expansion. In this paper, we identify a third
and separate pathway: vertical integration allows upstream monopolists
to exploit more fully the market power that has already been attained. We
explore the implications of this third pathway for antitrust policy.
1. INTRODUCTION
In an earlier paper, published 35 years ago, one of the authors addressed the topic
of market foreclosure, and whether it is a useful tool to evaluate the competitive
effects of vertical mergers (Comanor, 1967). Relying on Bork’s conclusions of a
few years earlier (Bork, 1954), he agreed that vertical foreclosure by a multi-stage
firm directed against its single-stage rivals could not be used effectivelyto increase
profits or restrict quantities. As a result, foreclosure by itself did not have specific
anti-competitive effects.
In this paper, and armed with new findings regarding the stability of positions
with market power, we reach different conclusions. While foreclosure achieved
through exclusionary actions may not always be an effective tool to achieve a
Antitrust Law and Economics
Research in Law and Economics, Volume21, 445–458
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(04)21008-9
445

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