The Price Effects of Using Firewalls as an Antitrust Remedy

The Price Effects of Using Firewalls as an Antitrust Remedy Antitrust authorities have imposed firewalls between the previously separate divisions of newly vertically integrated firms in several industries, to address concerns that access to horizontal rivals’ proprietary information may reduce competition. This paper evaluates a specific antitrust concern by modeling the price effect of one seller’s learning its rival’s production costs before bidding in a duopoly procurement contest. The results show that imposing a firewall as a condition for permitting a vertical merger actually can lead to higher prices than if the flow of information were unimpeded, and they provide guidance as to when this unintended outcome occurs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

The Price Effects of Using Firewalls as an Antitrust Remedy

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-011-9282-z
Publisher site
See Article on Publisher Site

Abstract

Antitrust authorities have imposed firewalls between the previously separate divisions of newly vertically integrated firms in several industries, to address concerns that access to horizontal rivals’ proprietary information may reduce competition. This paper evaluates a specific antitrust concern by modeling the price effect of one seller’s learning its rival’s production costs before bidding in a duopoly procurement contest. The results show that imposing a firewall as a condition for permitting a vertical merger actually can lead to higher prices than if the flow of information were unimpeded, and they provide guidance as to when this unintended outcome occurs.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Feb 19, 2011

References

  • Vertical integration and proprietary information transfers
    Hughes, J.; Kao, J.
  • Bertrand competition under uncertainty
    Janssen, M.; Rasmusen, E.

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