Vertical Mergers, The Coase Theorem, And The Burden of Proof

Thumbnail Image

Files

SSRN-id3405632.pdf (397.15 KB)

Links to Files

https://academic.oup.com/jcle/article-abstract/16/4/488/5855262

Permanent Link

https://doi.org/10.1093/joclec/nhaa015
 http://hdl.handle.net/11603/22237

Collections

UMBC School of Public Policy
UMBC Faculty Collection

Author/Creator

Author/Creator ORCID

Date

2020-06-10

Type of Work

journal articles preprints
Text

Department

Program

Citation of Original Publication

Brennan, Timothy J.; Vertical Mergers, The Coase Theorem, And The Burden of Proof; Journal of Competition Law & Economics, Volume 16, Issue 4, Pages 488–510, 10 June, 2020; https://doi.org/10.1093/joclec/nhaa015

Rights

This item is likely protected under Title 17 of the U.S. Copyright Law. Unless on a Creative Commons license, for uses protected by Copyright Law, contact the copyright holder or the author.
This article is published in Journal of Competition Law & Economics Published by Oxford University Press

Subjects

Abstract

The challenge by the Department of Justice (DOJ) to AT&T’s acquisition of Time Warner, and a prior challenge by DOJ and Federal Communications Commission to Comcast’s acquisition of NBC-Universal, has increased attention on vertical mergers. The standard approach identifies a tactic that the merged firm would employ that is both profitable and harms consumers. This approach misses the target; a profitable but anticompetitive tactic may be necessary but is not sufficient. The “Coase theorem” implies that courts and enforcement agencies should instead focus on why vertical integration is necessary to achieve an outcome that would be profitable to the merging firms. The focus on the tactic rather than why ownership matters presumes that vertical merger is necessary, without supporting theory or evidence. The same proposition should hold for horizontal mergers, but the required strength of evidence is greater for vertical mergers because mergers between complement providers are first-order beneficial and the conduct facilitated by horizontal mergers but not vertical mergers is typically illegal.