Research on Anti-competitive Effect of Forward Integration by Upstream Monopoly Firm

The anti-competitive effect of vertical integration is a main issue discussed in antitrust field. Based on the characteristics of Chinese aluminum industry and the vertical merging behavior of Chinalco, this paper discusses the anti-competitive effect of forward integration by a two-phase game model with upstream monopoly firms. The result shows that vertical integration has obvious foreclosure effect on the other downstream independent firms when Chinalco merged with downstream aluminum firms. But, this effect became weaker when the monopoly degree of Chinalco in upstream market is reduced. The asymmetry of entrance and exit barriers of aluminum causes the market transmission mechanism of up/down-stream prices out of work, which deteriorates the destinies of aluminum firms further. The foreclosure effect and the failure of transmission mechanism supply opportunities for Chinalco to merge aluminum firms. The long-term goal of Chinalco´ s vertical integration is to control scarce bauxite resources as far as possible and to use the anti-competitive effect of upstream monopoly to form the monopolistic advantage on the deep processing of aluminum products.