An equilibrium theory of organizational forms : a complementary market analysis

The dissertation develops an equilibrium theory of mergers in a complementary market setting where downstream firms sell a product which must have a compatible variety of products that are supplied by upstream firms. I map each of several different complementary market setting to a merger type, i.e vertical, counter, horizontal or none. I present the conditions under which a downstream firm will prefer integrating with an upstream firm, and conditions under a counter merger of firms occur. The analysis shows that a vertical merger is more likely to occur whenever one of the upstream firm is significantly productive than the other. However, counter integration of firms is also likely whenever the upstream firms are highly productive. Moreover, I present the conditions under which two downstream firms merge and form a new downstream firm. The findings support that the more competitive downstream market is , the more likely a horizontal merger is. In addition, a vertical merger, two vertical mergers and independent ownership can still be the outcome even though downstream competition is high. The results are obtained in a general two downstream firms and two upstream firms market setting that allows efficient compatibility contracts between upstream and downstream producers.