Posted by Social Science Research Network
By Steven C. Salop (Georgetown University)
Abstract: This short symposium article explains why and how vertical merger enforcement can and should be invigorated. Vertical merger enforcement has been an intended victim of an overdose of Chicago-School economics and laissez-faire ideology. In our modern market system, vigorous vertical merger enforcement is a necessity. Stronger enforcement is particularly important in markets where economies of scale and network effects lead to barriers to entry and durable market power. Even when there are parallel vertical mergers, the result may well be an anticompetitive reciprocal dealing coordinated equilibrium rather than intense competition among efficient integrated firms. Stronger enforcement would involve several steps, including recognition that claims of elimination of double marginalization and single monopoly profits do not deserve to be silver bullets and that structural remedies are preferred over behavioral relief.