The Complicated Simple Economics of Vertical Mergers
Start Page
215
Abstract
We model a vertical merger of an upstream monopolist with one of two downstream producers engaged in Bertrand competition. The theoretical model suggests a statistic—the net downstream pricing pressure (NDPP)—that can serve as a screen for which vertical mergers are most likely to result in consumer harm. We simulate the effect of a vertical merger for four different functional forms of demand. In the simulations, relatively few vertical mergers lead to price increases that harm consumers. Of those that do, many would be unprofitable absent efficiencies, and many would be with the smaller of the two downstream firms. Moreover, predicted merger effects are not robust to the assumption about the functional form for demand. In contrast, the NDPP statistic is highly correlated with the change in real output for all functional forms.
Recommended Citation
Stefano, Martino De and Salinger, Michael A.
(2025)
"The Complicated Simple Economics of Vertical Mergers,"
Journal of Law and Economics: Vol. 68:
No.
1, Article 7.
Available at:
https://chicagounbound.uchicago.edu/jle/vol68/iss1/7
