Working Paper: CEPR ID: DP15463
Authors: Johannes Boehm; Jan Sonntag
Abstract: This paper studies the prevalence of potential anticompetitive effects of vertical mergers using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. This relationship holds for both domestic and cross-border mergers, and for domestic and international relationships. It also holds when instrumenting mergers using exogenous downward pressure on the supplier's stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place. These findings are consistent with anticompetitive effects of vertical mergers, such as vertical foreclosure, rising input costs for rivals, or self-foreclosure.
Keywords: mergers and acquisitions; market foreclosure; vertical integration; production networks
JEL Codes: L14; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| vertical integration (L22) | breaking of buyer-seller relationships (L14) |
| vertical integration with a competitor (L14) | breaking of buyer-seller relationships (L14) |
| lack of alternative suppliers (L15) | drop in sales (F61) |
| little competition in upstream industry (L49) | higher break probability (C69) |
| vertical integration (L22) | increased input costs for rivals (L11) |
| vertical integration (L22) | anticompetitive outcomes (L41) |