The Price Effects of Using Firewalls as an Antitrust Remedy |
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Authors: | Charles J Thomas |
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Institution: | (1) Yale University, 135 Prospect Street, New Haven, CT 06520, USA |
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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. |
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Keywords: | |
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