Relevance of the chain of substitution argument in merger regulation of the telecom market

In this thesis I investigate the chain of substitution argument in an economic model, as currently there exists no literature doing this. I find that if there exists a chain of substitution as described in the European regulation this does not strictly increase competitive pressure. The latter depends on the demand of the market considered relative to other markets. Furthermore, I find that mergers on these markets strictly increase price and that the magnitude of the price increase depends on the height of demand of the market where the merger takes place. Finally I show that a merger on a market when already a lot of mergers have taken place should be seen as less favourable to a merger when not many mergers have taken place yet. I conclude that competition authorities should be very careful in using the chain of substitution argument as it is not in general supported by economic theory.