1. Explain the phenomenon of market foreclosure. Specifically, explain how a ver
ID: 2495983 • Letter: 1
Question
1. Explain the phenomenon of market foreclosure. Specifically, explain how a
vertical merger may “substantially lessen competition or tend to create a
monopoly” by virtue of market foreclosure. Explain how the following mergers
might result in market foreclosure:
a. A shoe manufacturer integrates “downstream” by merging /acquiring a
b. A dominant cable TV distributor (such as Time-Warner or Sudden Link)
shoe retailer (make reference to the Brown Shoe case here).
integrates “upstream” by the merger/acquisition of programmers such as
HBO, MTV, or ESPN.
Explanation / Answer
Market foreclosure is when a downstream buyer is denied access to an upstream supplier .These suppliers can acquire in the form of market power through merger and acquisitions specially in vertical integration . Vertical integration does not always lead to the problem of foreclosure because it lead to lower prices and higher quantities for consumers .
a) Shoe manufacturer will reduce competiiton due to vertical integration and restricts other suppliers due to mergers due to which they can charge higher prices .
b) upstream merger means the supplier will be denied the access to downstream buyers so they will sell only to a buyer who is ready to high prices for its services .
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