Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability



This paper analyzes the impact of vertical integration on the static and dynamic stability of downstream incomplete collusion. It is shown that a vertical merger between an upstream firm and a downstream cartel or fringe firm promotes downstream collusion, under certain conditions on the market size. However, for low downstream market concentration, a vertical merger with a cartel firm hinders collusion. Moreover, a welfare analysis shows that consumer surplus increases with the vertical merger because the merger partially eliminates the double marginalization problem.


Vertical integration Collusion Cartel stability 

JEL Classification

L12 L13 L42 D43 



The author Mariana Cunha acknowledges FCT for financial support (SFRH/BD/70000/2010). Furthermore, the authors are grateful to Professors António Brandão and Sofia Castro Gothen for their helpful comments and advices.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.FEP-UP, School of Economics and ManagementUniversity of PortoPortoPortugal
  2. 2.FEP-UP and CEF-UPUniversity of PortoPortoPortugal

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