Forward Contracting and the Welfare Effects of Mergers
Nathan H. Miller, EAG 13-1, May 2013
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.