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Diagonal Mergers and Foreclosure in the Internet

The Review of Network Economics

Vol. 4, Issue 1 - March 2005, pp 33 - 62

  Emanuele Giovannetti
Faculty of Economics, University of Cambridge and University of Rome “La Sapienza”
E-mail: [email protected]

  We study the incentives for a “diagonal” merger between two Internet Service Providers, one a wireless retail only ISP in two origination markets, and the second a vertically integrated wired retailer in one market and an upstream provider in the other. The merger’s effects depend on differentiation in access modalities; only with high differentiation does the merger have positive welfare effects. We focus on post-merger foreclosure, which, when it happens, only takes place in the market where the merger is horizontal and not where the merger is vertical. The Network architecture used is meant to capture Internet routing.

Keywords: vertical integration, ISP, diagonal merger, foreclosure

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