The article explores the effectiveness of divestitures as a remedy for upstream horizontal mergers in vertically related markets. We argue that competition authorities ignoring the asymmetric bargaining power between upstream and downstream firms when assessing the choice of the buyer of the divested brands is likely to implement an inadequate policy. First, a small buyer with high bargaining power can have a more negative impact on consumers than a relatively larger buyer with lower bargaining power. Second, there might even exist extreme cases where an anti-competitive upstream merger cleared with divestiture deteriorates consumer surplus more than a merger cleared without divestiture.
Topics: Competition and Regulation, Firms