In vertical mergers, antitrust agencies often focus on the merging firms’ incentives to foreclose inputs to rivals when analyzing competitive effects. Less attention is paid to the equally important question of whether the merged firm has the ability to foreclose inputs to rivals post-merger. A solution now exists.
CRA economist Dr. Alessandro Kadner-Graziano has developed a test to help assess whether a vertical merger provides the merged firm with the ability to foreclose rivals. His test uses pre-merger margins to determine whether the merging supplier is constrained from exercising market power such that the merged entity cannot foreclose downstream rivals. Dr. Kadner-Graziano also highlights a condition to identify whether vertical mergers that do not foreclose rivals benefit or harm consumers in equilibrium.
Antitrust authorities in the European Union (DG COMP), Germany (Bundeskartellamt), United Kingdom (CMA), and Brazil (CADE) have invited Dr. Kadner-Graziano to present his research and vertical merger test. He has also presented at an academic conference in Washington, DC. The published paper detailing his research is available here.
