Vertical Integration, Variable Proportions and Successive Oligopolies.

Abstract

This paper investigates the problem of how the effect of vertical integration upon the final product price is related to the production and/or market structures. Some ambiguous results of the previous models are shown to involve the compound effect of vertical an d horizontal merger. This model considers purely vertical integration and shows that the (Lerner) index of monopoly remains unaffected before and after merger. Vertical integration is shown accordingly to yield an unambiguous decrease in the final product price-an increase in consumer welfare. Implications for antitrust laws are also discussed. Copyright 1988 by Blackwell Publishing Ltd.