The entry incentives of complementary producers: A simple model with implications for antitrust policy

We model competition between two firms in an upstream-downstream relationship. Each firm can pay a sunk cost to enter the other's market. We show that coordination (e.g., through merger) can be anticompetitive, and that such coordination can arise in equilibrium.

Research Highlights►Vertical mergers can be anticompetitive when each firm can enter the other's market. ►Each firm can be uniquely positioned to compete in the other's market. ►Entrants need not be efficient to generate these anticompetitive mergers.