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Vertical Integration, Market Consolidation, and Economic Welfare

The Law and Economics of Patent Damages, Antitrust, and Legal Process

ISBN: 978-1-80071-025-2, eISBN: 978-1-80071-024-5

ISSN: 0193-5895

Publication date: 24 May 2021

Abstract

We examine a setting in which a vertically integrated provider (VIP) initially has a duty to deal with an independent rival at unregulated upstream and downstream prices. The duty to deal is subsequently terminated which enables the VIP to acquire the independent rival (or the expertise necessary to produce the rival's product) and then serve as a two-product monopolist in the downstream market. We find that the refusal to deal decreases rivalry but increases economic efficiency and is therefore presumptively “pro-competitive.” The paramount policy question concerns whether a refusal to deal that eliminates a rival and monopolizes the downstream market while increasing static efficiency should be considered a violation of Section 2 of the Sherman Act. This analysis also has implications for policies governing the unbundling of next-generation telecommunications networks.

Keywords

Acknowledgements

Acknowledgments

The authors are grateful to the editor, James Langenfeld, the associate editor, Samuel Clark, and an anonymous referee for extremely valuable comments and suggestions for revision that significantly improved the manuscript. Responsibility for any remaining errors resides exclusively with the authors.

Citation

Weisman, D.L. and Nadimi, S.R. (2021), "Vertical Integration, Market Consolidation, and Economic Welfare", Langenfeld, J., Fagan, F. and Clark, S. (Ed.) The Law and Economics of Patent Damages, Antitrust, and Legal Process (Research in Law and Economics, Vol. 29), Emerald Publishing Limited, Bingley, pp. 55-67. https://doi.org/10.1108/S0193-589520210000029004

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Emerald Publishing Limited

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