Vertical Commitments and the Price Effects of Mergers: Evidence from Electricity Markets


Jim B. Bushnell, Erin T. Mansur, and Frank A. Wolak



This paper presents an analysis of the unilateral price effects of the proposed merger between Exelon Corporation (Exelon) and Constellation Energy Group (CEG). A critical component of these effects is the vertical position of both firms in both the production and retailing of electricity. Despite this fact, official regulatory review has largely ignored this aspect of the merger. Using high-frequency facility level data, we estimate the vertical and forward commitments of the key players in this market. We then simulate merger impacts conditioning on the commitments of these players. One of the conditions applied to the merging firms, the divestiture of several coal-fired facilities, has the potential to make the competitive outlook worse once the vertical positions of those firms are accounted for.