Journal article

Merger Review for Markets with Buyer Power

Simon Loertscher, Leslie M Marx

Journal of Political Economy | University of Chicago Press | Published : 2019


We analyze the competitive effects of mergers in markets with buyer power. Using mechanism design arguments, we show that without cost synergies, mergers harm buyers, regardless of buyer power. However, buyer power mitigates the harm to a buyer from a merger of symmetric suppliers. With buyer power, a merger increases incentives for entry, increases investment incentives for rivals, and can increase investment incentives for merging parties. Because buyer power reduces the profitability of a merger, it increases the profitability of perfect collusion relative to a merger. Cost synergies can eliminate merger harm but also render otherwise profitable mergers unprofitable.

University of Melbourne Researchers


Funding Acknowledgements

We are grateful to three anonymous referees of this journal and the editor, Emir Kamenica, for comments and suggestions that have helped us to improve the paper. We also thank Catherine Corbett; Eric Emch; Joe Farrell; Volker Nocke; Patrick Rey; Mike Riordan; Carl Shapiro; Mike Whinston; seminar participants at the Australian Competition and Consumer Commission; the Commerce Commission in New Zealand; the Directorate-General for Competition of the European Commission; Penn State University; the Swiss Competition Commission; Universita della Svizzera Italiana; the University of Western Australia; Weil, Gotshal, and Manges; Russell McVeagh; and participants in the 2018 Market Design Workshop at the University of Technology Sydney; the 2017 Hal White Antitrust Conference; the Ninth Annual Federal Trade Commission Microeconomics Conference; the 2017 Organizational Economics Workshop in Sydney; and the 2016 Asia Pacific Industrial Organization Conference for helpful comments. Edwin Chan provided excellent research assistance. Financial support by the Samuel and June Hordern Endowment is gratefully acknowledged.