Abstract
This essay studies the private incentives for, and welfare consequences of, the vertical integration of successive monopolies. When the merged firm is as efficient as its pre-merger components, private and social interests coincide and the merger raises welfare by eliminating the double mark-up. When the merger leads to higher costs it is possible that some mergers will be privately profitable but not socially desirable and that some will be socially desirable but not privately profitable. These results suggest that a laissez-faire approach to this type of merger by antitrust authorities will not always be appropriate.
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Faculty of Commerce and Business Administration, University of British Columbia and Department of Economics, Carleton University. Much of this research was conducted while the author held the T.D. MacDonald Chair in Industrial Economics at the Bureau of Competition Policy in the Canadian government. The views expressed here are solely those of the author and are not necessarily those of the Bureau of Competition Policy. The author is grateful to Don McFetridge and two anonymous referees for helpful comments and to the Bureau of Competition Policy and the Carleton Industrial Organization Research Unit for financial support.
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Ross, T.W. On the vertical integration of successive monopolies. Review of Industrial Organization 7, 375–383 (1992). https://doi.org/10.1007/BF00353403
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DOI: https://doi.org/10.1007/BF00353403