Chen, Yongmin: On Vertical Mergers and Their Competitive Effects
World Conference Econometric Society, 2000, Seattle

Yongmin Chen, University of Colorado at Boulder
On Vertical Mergers and Their Competitive Effects
Session: C-9-7  Monday 14 August 2000  by Chen, Yongmin
It is well known that vertical integration can change an upstream producer's incentive to supply the integrated firm's downstream rivals. However, it has not been noticed that vertical integration also changes these rivals' incentive to choose suppliers. Once this is recognized, some important results in the literature are shown to be incorrect. An equilibrium theory of vertical merger is then developed. Under fairly general conditions, vertical mergers will result in both efficiency gains and market foreclosure (collusion), and a familiar measure concerning product differentiation can be used to evaluate whether a vertical merger tends to benefit or harm consumers.
Submitted paper full-text in .pdf


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