Raising Rivals ’ Costs In The Tuna Industry

Abstract: Vertical mergers are mostly perceived in the literature as a way of reducing production and transaction costs. However, vertical restrictions or raising rivals ’ costs (RRC) are taken into great consideration by the antitrust authorities as potential consequences of vertical integration. The case of the French tuna industry seems of particular relevance to look at causes of vertical integration and the implications on competition within the industry. In 1994, a major fishing and transportation company has been taken over by a member of the French tropical tuna oligopoly. This company was previously supplying fish for all the canneries without earning extra profits. Since the institutional change, trade has been diverted and the company is now making substantial profits. With regard to this case study, one could hardly conclude that one of the oligopolists has developed such a strategy to intentionally raise its rivals ’ costs. Efficiency and security of supply still provide a good explanation of the vertical integration decision. Nonetheless, uncertainty has been transferred from a competitor to the others after the acquisition. Whenever a risk of shortage occurs, uncertainty is increasing for the rivals, and the supplying costs too. Beyond the contribution of this case study to the conditions under which RRC strategy is rational for vertical integration decisions, the consequences for the French antitrust policy are discussed