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Leslie Marx (Duke) – "Countervailing Power, Integration, and Investment under Incomplete Information"
CREST Microeconomics Seminar :
Date: 07th October 2020
We provide an incomplete information model to analyze bargaining, countervailing power, integration, and investments. These have been at the forefront of merger decisions. Countervailing power arguments stipulate that horizontal mergers can be socially desirable because they offset bargaining power on the other side of the market. The tradeoff between profit and social surplus with independent private values gives rise to the possibility of social-surplus-increasing countervailing power and socially harmful vertical integration. Moreover, efficient bargaining implies efficient, noncontractible investments; horizontal mergers can harm rivals; bargaining breaks down on the equilibrium path; and countervailing power can align investments with the first-best. Joint work with Simon Loertscher
Roxana Fernandez Machado (CREST), Julien Combe (CREST), and Matias Nunez (CREST)