Merger review with intermediate buyer power

Click here to read the full article online

Buyer power features prominently in antitrust cases and debates, particularly as it relates to the potential for a merger among suppliers to harm a buyer. Using a Myersonian mechanism design approach, Loertscher and Marx (2019) provide a framework for merger review for markets with buyer power, assuming that buyer power is a zero-one variable. In the present paper, we extend this analysis by treating buyer power as a continuous variable (technically, as a Ramsey weight) that ranges from zero to one. This generalization is relevant because, among other reasons, the Ramsey weight can be interpreted as a conduct parameter that can be estimated. Moreover, we establish the robustness of prior results to an alternative way of modelling merger-related cost synergies, and we show that when an acquiring firm’s choice of target is endogenous, its profit-maximizing choice depends on the buyer’s power.