Scandinavian Working Papers in Economics
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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2001:1:
Vertical Integration and Competition Policy

Jonas Häckner ()

Abstract: Recently, the European Commission has decided to implement a simplified procedure in the context of vertical integration. If the combined market shares of the merging firms are less than 25 percent, upstream and downstream, the Commission will consider the merger harmless. The purpose of this study is to examine the welfare aspects of vertical integration in a simple model and investigate the accuracy of the proposed rule of thumb. The welfare implications of vertical integration turn out to depend on relative market shares and the degree of product differentiation. Basically, a merger is harmless from a social point of view when the upstream market is relatively concentrated compared to the downstream market and/or if products are sufficiently close substitutes. We therefore suggest an alternative screening rule: If the upstream market is significantly less concentrated than the downstream market, or if products obviously are close substitutes, mergers may be approved at an early stage of the screening process. Otherwise the merger may be detrimental to welfare and the competition authority should evaluate it more carefully.

Keywords: Vertical Integration; Merger; Competition Policy; (follow links to similar papers)

JEL-Codes: L13; L42; (follow links to similar papers)

18 pages, January 24, 2001

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This paper is published as:
Häckner, Jonas, (2003), 'Vertical Integration and Competition Policy', Journal of Regulatory Economics, Vol. 24, No. 2, pages 213-222

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