Vertical Mergers that Induce Exit

Abstract

It is well understood that vertical mergers can create an incentive for the merged firm to foreclose unintegrated rivals, and that one way this foreclosure can manifest itself is by driving an unintegrated rival below its minimum viable scale and causing it to exit. The central claims of this article are (1) that exit-inducing mergers are likely to be especially harmful because they result in the elimination of a competitor and (2) that even a modest amount of foreclosure can induce exit if the rival was not too far above its minimum viable scale before the merger. I argue that exit-inducing mergers merit explicit treatment in a revised version of the DOJ/FTC Vertical Merger Guidelines, both because they are harmful and because the possibility that they may occur with only modest foreclosure has important implications for how they should be investigated.