Finance and Economics Discussion Series (FEDS)
January 2023
Beyond "Horizontal" and "Vertical": The Welfare Effects of Complex Integration
Margaret Loudermilk, Gloria Sheu, Charles Taragin
Abstract:
We study the welfare impacts of mergers in markets where some firms are already vertically integrated. Our model features logit Bertrand competition downstream and Nash Bargaining upstream. We numerically simulate four merger types: vertical mergers between an unintegrated retailer and an unintegrated wholesaler, downstream "horizontal" mergers between an unintegrated retailer and an integrated retailer/wholesaler, upstream "horizontal" mergers between an unintegrated wholesaler and an integrated retailer/wholesaler, and integrated mergers between two integrated retailer/wholesaler pairs. We find that mergers that have both horizontal and vertical characteristics typically harm consumers. We apply the model to the Republic/Santek merger as a real-world example.
Keywords: bargaining models, merger simulation, vertical markets, vertical mergers
DOI: https://doi.org/10.17016/FEDS.2023.005
PDF: Full Paper
Related Materials: Accessible materials (.zip)
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