The Research On Anti-competitive Effects From Vertical Mergers

Vertical merger, also known as vertical integration, it refers to that themanufacturers participate in more than one consecutive stage of production or sales.Enterprise can expand their business through the integration, such as themanufacturing enterprises expand to Parts, raw materials, through the integration ofproduction.Enterprise can obtain many benefits by integration:(1) reduce the transactioncost of enterprises;(2) strengthen the market monopoly power;(3) to ensure a steadysupply of inputs;(4) the internalization of external economy. These benefits can helpimprove the efficiency of enterprises. However, standing on the perspective of marketresearch, the vertical integration also has anticompetitive effects.We want to know how the vertical merger can produce anti competitive effectsand the collusion effect under the specific market structure. Differential treatment ofvertical merger by the property rights theory analysis method. Vertical integration isbased on merger the property right between enterprises. Treating vertical merger as astage of exclusive dealing contract，Ignore the property rights problem. The verticalmerger is regressed to vertical restraint and analysis vertical merger by the method ofthe vertical restraint. Through analysis the alternative target of vertical mergers toobserve the effect of vertical merger. At first, we research that the incumbent preventthe efficient entrants from into the market. Hypothesis that only the completely marketshare can profit. An upstream manufacturer can meet the demand of downstreammanufacturers, the incumbent can reject entry, successfully, as long as the incumbentmergers a downstream enterprise. The upstream manufacturers provide discriminatorygame contract to the downstream firms, use this means of merger, the incumbent canmerger a downstream firms at lower cost, even can acquire more downstream firms,completely exclusion entry. We can get the conclusion through observe thecompensation of the downstream manufacturers which given by the upstreammanufacturers, the incumbent is able to complete the merger with low cost, exclusionthe efficient firms enter the market, this behavior has the obvious effect of anticompetition. Then, Comparison two kinds of market structures and consumer surplusprofit, we can draw the conclusion, vertical merger exclusion efficient entrants damagethe profit of downstream independent manufacturers, it is not conducive to marketefficiency, but has positive effect on consumer surplus.Vertical integration has the collusion effect. In the Bertrand competition, thediscount rate directly affects the collusion, if the discount rate is very low, so it is difficult to maintain collusion. Each enterprise like profit, due to fierce pricecompetition, the upstream enterprise is very difficult to obtain profit; downstreamenterprises can observe behavior of the upstream enterprise. The downstreamenterprises is the advantage enterprises at this time，the downstream will improveefficiency and expand market forces after merger upstream enterprises. The stabilityof collusion will gradually increase with enterprise quantity of vertical integrationincreased，due to the amount of enterprises vertical integration is increase, theseenterprises occupy the market share will be greater. For large enterprises, cooperationwill always better than the competition, so the horizontal collusion is possible inupstream. The collusion of vertical merger firms will also have two effects, one is thedistribution point effect, and another is the punishment effect. The former has apositive effect, the later has a negative effect, the two will also effect. Two effectswork simultaneously. Collusion effect of vertical integration depends on the morepowerful one of two kinds of effects. The critical discount rate as parameters is usedto study on the changes trend of these effects under different market structures. Wecould know how vertical integration impact on Collusion effect through the results ofcomparison. Finally we come to the conclusion that with the enterprise quantity ofintegration increase, the discount rate is on the rise. It is mean that increase thenumber of vertical integration manufacturers make collusion become increasinglyconsolidated.