VERTICAL SEPARATION AND HORIZONTAL MERGERS

We consider a duopoly setting consisting of two manufacturer-retailer pairs in which the observable contract between each manufacturer-retailer pair specifies a two-part tariff. Without intra-band competition we show that an upstream merger is anti-competitive under very general demand and cost conditions. Downstream merger is analysed using linear demand and constant marginal cost and is shown not to be anti-competitive both with and without intra-band competition and for both price and output competition between retailers in the pre-merger regime.