Downstream merger with upstream market power

Lommerud, Kjell Erik; Straume, Odd Rune; Sørgard, Lars

doi:10.1016/s0014-2921(03)00068-0

Cited by 88 publications

(105 citation statements)

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“…The bargaining-effects literature almost entirely consists of theoretical studies (Choi, 2001;Braun, 2008); thus, a sizeable theoretical foundation exists -e.g., Mezetti and Dinopoulos (1991); Lommerud et al (2003Lommerud et al ( , 2005Lommerud et al ( , 2006 -formalizing the idea that FDI allows firms to play off one group of workers against another. Yet to the best of our knowledge, only a handful of studies bring some evidence to bear concerning the empirical robustness of the bargaining-effects mechanism.…”

Section: Background Literaturementioning

confidence: 99%

“…As Poole (2013) argues, a larger share of cross-border activity 7 Such a downward pressure on wages will not be present in a corresponding model with a competitive labor market with a horizontal supply curve (a constant reservation wage). Furthermore, Lommerud et al (2005) model bargaining effects via a monopoly-union setting wages (like we do here) and also via a situation where domesticindustry wages are set through bargaining. Most importantly, they find identical qualitative results when considering the impact of cross-border mergers on wages under both approaches.…”

Section: Estimation Strategymentioning

confidence: 99%

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Cross-border mergers and domestic-firm wages: Integrating “spillover effects” and “bargaining effects”

et al. 2014

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Cross-border mergers and domestic-firm wages: Integrating "spillover effects" and "bargaining effects" Article (Draft) Original Citation: Clougherty, Joseph A. and Gugler, Klaus and Sørgard, Lars and Szücs, Florian (2014) Cross-border mergers and domestic-firm wages: Integrating "spillover effects" and "bargaining effects". Journal of International Business Studies, 45. pp. 450-470. ISSN 0047-2506 This version is available at: http://epub.wu.ac.at/4129/ Available in ePub WU : April 2014 ePub WU , the institutional repository of the WU Vienna University of Economics and Business, is provided by the University Library and the IT-Services. The aim is to enable open access to the scholarly output of the WU.This document is an early version circulated as work in progress. There are minor differences between this and the publisher version which could however affect a citation.http://epub.wu.ac.at/ 1 Cross-border mergers and domestic-firm wages:Integrating 'spillover effects' and 'bargaining effects' Abstract Two literatures exist concerning cross-border merger activity's impact on domestic wages: one focusing on positive spillover-effects; the other focusing on negative bargaining-effects. Motivated by scarce theoretical scholarship spanning these literatures, we nest both mechanisms in a single conceptual framework. Considering the separate phenomena of inward and outward cross-border merger activity, our theoretical model generates three formal propositions: cross-border mergers can lead to wage increases via positive spillover-effects; and negative bargaining-effects are relatively more dominant when union market power is high, and when merging firms exhibit relatedness. Employing US firm-level panel data on wages combined with industry-level data on unionization and merger activity (covering 1989-2001), we find support for our propositions as inward and outward cross-border merger activity generate positive spillovers to wages, but are more likely to generate firm-level wage decreases when unionization rates are high and when cross-border merger activity is characterized as horizontal. Accordingly, future research on how cross-border mergers affect domestic wages should be mindful that both spillover and bargaining effects are at play, and that the degree of union marketpower and the relatedness of cross-border merger activity are critical in determining which effect dominates.

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Section: Background Literaturementioning

confidence: 99%

Section: Estimation Strategymentioning

confidence: 99%

Cross-border mergers and domestic-firm wages: Integrating “spillover effects” and “bargaining effects”

et al. 2014

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“…Several papers have previously studied horizontal mergers in bilateral oligopoly models (see Horn and Wolinsky, 1988;Ziss, 1995;Lommerud, Straume, and Sorgard, 2005;Milliou and Pertrakis, 2007;Symeonidis, 2010). Although modeling details are different, pre-merger setups of these previous models share a common feature; that is, there are one-to-one relationships between upstream and downstream firms (three pairs of upstream and downstream firms in Lommerud et al and two pairs in others).…”

Section: Relationship To the Literaturementioning

confidence: 99%

“…When the upstream industry produces a final product, each downstream retailer is an exclusive distributor of one upstream firm's product. The price of each upstream firm's product is determined by its bargaining with the paired downstream firm in Horn and Wolinsky (1988), Milliou and Pertrakis (2007), and Symeonidis (2010), whereas the price is set by each upstream firm in Ziss (1995) and Lommerud et al (2005). Another common feature is that the final products are differentiated across producers in all these models.…”

Section: Relationship To the Literaturementioning

confidence: 99%

“…Thus, conditional on u − d > 1 being satisfied, a mean-preserving spread of unit costs raises H, which increases the right-hand side of (14) and makes welfare improvement more likely. A reduction in the input price increases cost-efficient firms' competitive advantages over cost-inefficient firms, and increases market shares of cost-efficient firms.…”

Section: Proposition 3 When the Upstream Firms Have Asymmetric Unit Cmentioning

confidence: 99%

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Horizontal Mergers in the Presence of Vertical Relationships

Ghosh¹,

Morita

Wang

2014

SSRN Journal

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We study welfare effects of horizontal mergers under a successive oligopoly model and find that downstream mergers can increase welfare if they reduce input prices. The lower input price shifts some input production from costinefficient upstream firms to cost-efficient ones. Also, the lower input price makes upstream entry less attractive, reduces the number of upstream entrants, and decreases their average costs in the presence of fixed entry costs. We identity necessary and sufficient conditions for a reduction in input prices and welfare-improving horizontal mergers under a general demand function. Qualitative nature of our findings remains unchanged for upstream mergers.

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Merging with a buyer group member

Erutku¹,

Lamirande

2009

Manage Decis Econ

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We examine a merger between a national retailer and a local retailer who is a member of a buyer group. While the traditional literature on mergers assumes an oligopolistic industry (where the merger takes place) supplied by a perfectly competitive one, we assume here that retailers obtain their input from a supplier that can offer quantity discounts. In this setting, a merger can be profitable for insiders (solving the merger paradox) and can also be more profitable for insiders than for outsiders (solving the free-riding problem). This result holds even if the merged firm ends-up with a small share of the market. However, welfare decreases post-merger. Copyright © 2009 John Wiley & Sons, Ltd.

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Downstream merger with upstream market power

Cited by 88 publications

References 35 publications

Cross-border mergers and domestic-firm wages: Integrating “spillover effects” and “bargaining effects”

Cross-border mergers and domestic-firm wages: Integrating “spillover effects” and “bargaining effects”

Horizontal Mergers in the Presence of Vertical Relationships

Merging with a buyer group member

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