Essays in Industrial Organization

In chapter 1, I study vertical integration and investments in the context of container ports. Critical infrastructure sectors, such as container ports, rely on private firms (or terminals, in the context of container ports) to undertake investment. Vertical integration (VI) has been growing between container terminals and container shipping lines in recent decades. This trend can have first-order consequences for welfare. Because VI is a key determinant of returns on investment, and investments can either be strategic substitutes or complements, the relationship between VI and market-level investment is theoretically ambiguous and ultimately an empirical question. This paper studies how VI affects terminals’ returns on investment by developing a tractable model to predict how demand for terminal services would change in equilibrium, and how that affects contract negotiations between terminals and shipping lines. The model is estimated using Brazilian data and used to simulate a large vertical merger. Merger simulations predict small static welfare gains, along with reductions in both rival profits and returns on investment, except for the merging firms. Because the model estimates imply that that investments are strategic substitutes in this setting, this indicates that large vertical mergers could potentially reduce long-run welfare by reducing profitability and investments by rivals of the merged firm.

In chapter 2, we use an aggregative games framework to predict consumer welfare when market structure is endogenously determined. Specifically, we characterize mergers whose synergies \textit{reduce} consumer welfare by inducing rivals to exit. Our results apply to quantity competition among homogeneous products as well as price competition among multiproduct firms facing multinomial logit demand. Based on models calibrated to commonly used parameter values, we find that the synergies required to maintain consumer surplus can be much higher than those implied by traditional merger analysis. We also find that neither follow-on mergers nor subsequent entry necessarily eliminate the problem.

In chapter 3, we study \textit{rollups}, a series of acquisitions through which a financial sponsor consolidates ownership. Increasingly, this strategy is shaping economically important markets, but historically, it has escaped antitrust enforcement. We study this phenomenon in the anesthesia industry, site of the first rollup-based antitrust case in US history. First, we identify eighteen other rollups of anesthesia practices that are observationally similar to the three litigated ones. Next, we show that rollups consolidate ownership and prices rise sharply after competing practices are acquired. Last, we estimate a structural bargaining model and simulate counterfactual equilibria under various remedies.