Discussion Paper

No. 2014-33 | August 20, 2014
Bridging the Gap between Horizontal and Vertical Merger Simulation: Modifications and Extensions of PCAIDS

Abstract

A general theoretical and empirical framework is developed for assessing the potential of a vertically integrated firm to foreclose downstream competitors. Using this framework a policymaker may also evaluate the empirical welfare effects from a vertically integrated firm raising rivals' costs. The framework is developed within the context of a vertically integrated multichannel video programming distributor ("MVPD"), and this framework extends the applicability of PCAIDS to vertical mergers. Using public data from the Comcast–Time Warner–Adelphia Merger Order of the Federal Communications Commission, price effects from the threat and action of foreclosure in several designated marketing areas were simulated. Empirical results suggest that the Commission Staff Model substantially underestimated price increases to end users as a result of the threat and action of foreclosure. Empirical results suggest that Commission's Program Access Rules were essential for MVPD competition.

JEL Classification

C15 C01 C02 C53 C61 D4 K2 L1 L96

Cite As

C. Anthony Bush (2014). Bridging the Gap between Horizontal and Vertical Merger Simulation: Modifications and Extensions of PCAIDS. Economics Discussion Papers, No 2014-33, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-33

Assessment



Comments and Questions


Anonymous - Referee Report 1
October 09, 2014 - 08:58

see attached file


Clarence Bush - Reply to Referee Report 1
November 11, 2014 - 08:22

see attached file