We confine our attention to the duopoly case where the upstream wage is negotiated through union-manufacturer bargaining and discuss the different effects that the bargaining power of the union has on the upstream and downstream mergers, respectively.
Upstream Mergers, Downstream Mergers, and Secret Vertical Contracts," Research in Economics 55, 275-289.
Fumagalli and Motta (2001) showed that downstream mergers are more likely to give rise to welfare detrimental effects than upstream mergers.
Fumagalli and Motta (2001) consider an industry characterized by secret vertical contracts, and examine a benchmark case where there are two vertical chains, in which two upstream manufacturers sell to two downstream retailers, thereby demonstrating that a downstream merger is more welfare detrimental than an upstream merger.
We show that the wage is jointly determined by the union and the upstream firm through bargaining and will have different impacts on the pre-merger and after-merger cases in the event of an upstream merger or a downstream merger.
We confine our attention to the duopoly case where the upstream wage is negotiated through union-manufacturer bargaining and discuss the bargaining power of the union in terms of its having different effects on an upstream merger and a downstream merger.
In the next section, we will compare the equilibrium outcome of an upstream merger with that of a downstream merger where there are secret contracts.
Such transactions include a liquidation, a downstream merger, and a distribution to which section 355 applies.
Although a downstream merger of a parent company into its subsidiary may have different tax consequences from a liquidation of the subsidiary into the parent,(93) in either case intercompany gain with respect to a prior transfer of the subsidiary's stock would be taken into account.