A Chain Oligopoly Model Of Merger Strategies And Competition

Competition along an agri-food chain is analyzed with the use of a chain oligopoly model. This model includes an oligopoly facing an oligopsony, which are solved simultaneously. The results of standard industrial organization models are altered when oligopoly-oligopsony is modeled simultaneously. Verifying Galbraith’s (1952) countervailing power hypothesis, it is shown that it is not always profitable to exercise market power when there are firms with market power on the other side of the market. It is also shown that there are more powerful incentives for vertical than horizontal mergers in the case of chain oligopolies. The merger between MD FOODS and klØver mÆlk in Denmark highlights several of the issues involved.