An Analysis Of Vertical Merger&market Foreclosure Under Funnel-shaped Market Structure

Being regarded as the main approach for growth of enterprises, enterprise merger isapplied by numerous world renowned enterprises to finally accomplish building theirown giant enterprises. To achieve the national industrial restructuring, China currentlyencourages the merger and restructuring of some key industries, and wishes to optimizethe domestic industrial structure and improve the international competitiveness ofrelated enterprises through the drive of leading enterprises. However, as the same withthe eternal topic that how to balance the efficiency and fairness, merger is alsocharacterized by the two sides: on the one hand, our country announces variousguidance suggestions on merger of industries; on the other hand, the first ChineseAntimonopoly Law was also published in2008. In term of enterprise merger, thevertical merger is considered to be the most complex and lacking of commonness fromthe long-term practices of numerous countries. Exactly, the Chinese Antimonopoly Lawis short of such specific quantitative index and analytical framework and less able todiscriminate such kind of merger. From the perspective of the application in merger,economics theory is often directly used in the antimonopoly law. If merger is theinevitable product of enterprise development to a certain extent in accordance withmarket disciplines, the antimonopoly law then needs to formulate the rules based oneconomic theories, in order to provide an environment conducive to social overalldevelopment and healthy industrial growth.Based on the analysis on related literatures on vertical mergers from both home andabroad and in accordance with the theoretical framework of EU non-horizontal mergerlaws, this article takes the merger case of a real grain and oil enterprise as the startingpoint, and establishes a matched theoretical model–vertical merger model under thefunnel-shape market structure. And it strives to enrich and supplement the originalclassical model in the model design process; and in the process of numerical analysis, itapplies the mathematical theories to explain the case. It aims to provide a researchframework for this vertical merger case through the scientific modeling analysis, thusmaking certain contributions to our domestic industry optimization. This article makes researches on the vertical merger under the funnel-shape marketstructure. For the research framework refers to the EU non-horizontal guidance, theresearch method and technique then apply the game theory of the post-Chicago school,operation research and numerical analysis. The unbelievable foreclosure strategy of0SSmodel is also improved in this article. The article mainly probes into these: What ismechanism for the occurrence of vertical merger under the funnel-shape marketstructure? What is the generated foreclosure strategy in game process? And what are thechanges of social welfare and corporate profit after the occurrence of vertical merger?Research findings: Under the model assumption, the vertical merger does not lead tothe complete market foreclosure. The merged enterprises cooperate with theindependent downstream enterprises. The relative changes of the downstream marketproduct price and market scale after the vertical merger, consumer welfare andcorporate profit are all affected by the extent of product differentiation. The model inthis article makes extension based on the previous literatures, and the conclusion makesexplanation concerned for the case.