Vertical Integration With Multiproduct Firms: When Eliminating Double Marginalization May Hurt Consumers

77 Pages Posted: 5 Feb 2018

See all articles by Fernando Luco

Fernando Luco

Texas A&M University

Guillermo Marshall

University of British Columbia (UBC) - Sauder School of Business

Date Written: January 15, 2018

Abstract

How do vertical mergers impact consumers? Though often presumed to eliminate double marginalization and generate efficiencies, theory predicts that vertical integration in multiproduct industries may cause price changes that hurt consumers even in the absence of market foreclosure. We measure the causal effects of vertical integration on prices by exploiting variation in vertical structure caused by vertical mergers in the carbonated-beverage industry. We find that vertical integration caused a decrease in the prices of products with eliminated double margins, but a price increase on average, raising the question of whether consumers necessarily benefit from vertical mergers.

Keywords: vertical integration, competition policy, antitrust, multiproduct firms, carbonated-beverage industry

JEL Classification: L1, L4

Suggested Citation

Luco, Fernando and Marshall, Guillermo, Vertical Integration With Multiproduct Firms: When Eliminating Double Marginalization May Hurt Consumers (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3110038 or http://dx.doi.org/10.2139/ssrn.3110038

Fernando Luco

Texas A&M University ( email )

4228 TAMU
College Station, TX 77843
United States

Guillermo Marshall (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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