Abstract :
We examine the incentives for upstream firms to consolidate horizontally and
the impact of this process on industry performance, when there are downstream
entry barriers and firms negotiate bilaterally. In the short run, consumers are not
worse off with upstream mergers, since consolidation only results in a redistribution
of industry rents. In the long run, consumers are better off after upstream
mergers, since they induce more entry into that segment. When social welfare
is evaluated, a limit on upstream consolidation may prevent excessive entry; but
upstream entry can be sometimes insufficient, if the retailers’ intrinsic bargaining
power is excessive
