Portfolio analysis in European merger control: an economic analysis

Vergé, Thibaud (2002) Portfolio analysis in European merger control: an economic analysis. CMPO Working Paper, (02/046).

Abstract

The year 1997 saw the emergence of a new game theory in European merger control called the 'portfolio power theory'. The European Commission argues that the holder of a comprehensive portfolio of brands may obtain a stronger position vis-à-vis its customers, and can therefore more easily impose restrictions, such as full-line forcing. The objective of this paper is to analyse this argument from a theoretical point of view. We show that tie-in sales allow the incumbent to deter entry and to eliminate the retailer's rent when the downstream sector is monopolised. When the producers compete directly for consumers, the second brand provides a new predation tool. This allows the incumbent to deter entry more easily, but it can also limit price distortion. In both cases, the welfare impact is not clear-cut.

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