Modeling the effects of mergers in procurement

In procurement settings, mergers among suppliers reduce buyers' choice sets and can harm buyers by eliminating their preferred supplier or reducing their negotiating leverage. I develop a stochastic economic model that predicts the effects of mergers based on information that commonly is available to antitrust authorities. I derive general expressions for the ex ante expected changes in price, buyer utility, and supplier profit. Each becomes tractable under certain distributional assumptions. The model predicts that average prices will increase by more than 40% due to the recently litigated acquisition of Power Reviews by Bazaarvoice, in the absence of an effective remedy.