Mergers enable firms to internalize pricing externalities among competitors, hence raising market power and reducing social welfare. Mergers, on the other hand, can create merger-specific efficiencies and hence promote welfare. This thesis investigates the competitive effects of both horizontal and vertical mergers, motivated by this trade-off. It consists of two chapters. Chapter 2 sheds light on the competitive effects of killer acquisitions by extending the theoretical model of Cunningham et al. (2021). It examines how an acquiring firm's post-acquisition divestiture incentive is affected by the nature of competition, how the divestiture strategy impacts the likelihood of killer acquisitions, and what policy remedies are effective for merger control. The result shows that when firms compete in quantities and product similarity is sufficiently high, the acquiring firm strategically chooses to produce the newly acquired product under a separate subsidiary. With the extra divestiture option, the killing zone becomes smaller and the parameter region for genuine acquisition is larger. Unless the development cost is sufficiently high, killer acquisitions unambiguously reduce consumer welfare and social welfare. To mitigate the anti-competitiveness of killer acquisitions, Chapter 2 proposes two divestiture-related policy remedies: "Commit-to-divest" remedy and "Committo-develop-and-divest" remedy. It shows that the two remedies are effective in merger control when the development cost is not too high. In particular, the "Commit-to-develop-and-divest" remedy totally prohibits the emergence of killer acquisitions and increases consumer welfare. Chapter 3 discusses the competitive effects of vertical mergers. It studies whether a partial vertical merger results in market foreclosure, and how the integrating firm' foreclosure strategy affects consumer welfare, in a successive duopoly setting. The result suggests that the magnitude of partial ownership shares has a significant impact on the integrated firm's incentive in foreclosing competitors. The integrated upstream firm, in particular, chooses input foreclosure if and only if the ownership stake is sufficiently high, and the integrated downstream firm executes customer foreclosure if and only if the ownership stake is intermediate. Furthermore, consumer welfare is maximized when the ownership share is intermediate.
|Date of Award
|13 Sept 2022
|Ping LIN (Supervisor) & Tianle ZHANG (Co-supervisor)