Abstract: Simulating Mergers in a Vertical Supply Chain with Bargaining

Simulating Mergers in a Vertical Supply Chain with Bargaining

Gloria Sheu and Charles Taragin, EAG 17-3, October 2017

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We model a two-level supply chain where Nash bargaining occurs upstream, while firms compete in a differentiated products logit setting downstream. The parameters of this model can be calibrated with a discrete set of data on prices, margins, and market shares. Using a series of numerical experiments, we illustrate how the model can simulate the outcome of both horizontal and vertical mergers. In addition, we extend the framework to allow for downstream competition via a second score auction.

Keywords: bargaining models; merger simulation; vertical markets
JEL classification: L13; L40; L41