We examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers. Merger may have bargaining effects in addition to the usual efficiency effects. The effect of merger on the buyers' bargaining position depends on the curvature of the supplier's gross surplus function: merger enhances (worsens) the buyers' bargaining position if the function is concave (convex). Based on a panel of advertising revenue in the cable television industry, our estimates indicate that the gross surplus function for suppliers of program services is convex. This result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis-a-vis program suppliers.

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© 1999 President and Fellows of Harvard College and the Massachusetts Institute of Technology
1999
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