Abstract

Forward Contracting and the Welfare Effects of Mergers

Nathan H. Miller, EAG 13-1, May 2013
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Abstract:
I extend the oligopoly model of Allaz and Vila (1993) to explore how forward contracting affects the adverse welfare consequences of horizontal mergers. I derive a welfare statistic that, within the context of the model, is free of structural parameters. The statistic allows for conclusions that generalize across different cost and demand conditions. I then show that exogenous forward contracting mitigates welfare loss but that endogenous forward contracting exacerbates welfare loss provided the relevant industry is sufficiently concentrated.

Updated July 24, 2015