Module 4

Module 4: Economics of Mergers

(12 a.h.¹)

Outline of Course Contents

The aim of this module is to examine empirical facts about mergers, review key policy tools to evaluate mergers, and present theoretical models that study the incentives to merge and the welfare effects of mergers.


1. Mergers in practice

(a) some facts about mergers
(b) merger evaluation in practice: horizontal versus vertical
(c) the price effects of merger
(d) HHI and safeharbor tests
(e) mergers with differentiated products – GUPPI
(f) mergers with efficiencies – NUPI

 2. Horizontal mergers – theory

(a) the Cournot model
(b) the inverse elasticity rule
(c) HHI and welfare
(d) mergers without synergies
(e) mergers with synergies
(f) mergers with complements
(g) spatial mergers
(h) mergers to create market power
(i) coordinated effects of mergers

 3. Vertical mergers – theory

(a) transaction cost economics
(b) the double marginalization problem
(c) downstream/upstream moral hazard
(d) mergers to foreclose downstream rivals
(e) mergers under supply assurance
(f) the opportunism problem


Bolton, P., Whinston, M. (1993). “Incomplete contracts, vertical integration, and supply assurance,” Review of Economic Studies, 60, 121–148.

Farrell, J., Shapiro, C. (1990). “Horizontal Mergers: An Equilibrium Analysis,” American Economic Review, 80, 107–126.

“Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings” (2004),

Hart, O., Tirole, J. (1990). “Vertical Integration and Market Foreclosure,” Brookings Papers on Economic Activity (Microeconomics), 205–285.

Kamien, M.I., Zang, I. (1990). “The Limits of Monopolization through Acquisition,” Quarterly Journal of Economics, 105, 465–500.

Ordover, J., Saloner, G., Salop, S.C. (1990). “Equilibrium Market Foreclosure,” American Economic Review, 80, 127–142.

Rey P. and J. Tirole (2007) “A Premier on Foreclosure,” in Armstrong and Porter (eds.) Handbook of Industrial Organization 3 Ch. 33, North Holland.

Salant, S., Switzer, S., Reynolds, R. (1983). “Losses from Horizontal Mergers: The Effect of an Exogenous Change in Industry Structure on Cournot-Equilibrium,” Quarterly Journal of Economics, 98, 185–199.

U.S. “Horizontal Merger Guidelines” (2010),

U.S. “Draft Vertical Merger Guidelines” (2020),

Whinston, M. (2007) “Antitrust Policy towards Horizontal Mergers” in Armstrong and Porter (eds.) Handbook of Industrial Organization 3 Ch. 36, North Holland. (Note that the 1992 Guidelines referenced in this paper have been superceded by the 2010 Guidelines listed above)

Wollmann, T. (2019), “Stealth Consolidation: Evidence from an Amendment to the Hart-Scott-Rodino Act,” American Economic Review: Insights, 1(1), 77-94

¹ a.h. = academic hour (50 minutes)