Determining the Competitive Effects of Vertical Integration in Mergers

31 May 2011
By Dr. Christine Siegwarth Meyer, et al.

The economic analysis of vertical mergers involves a consideration of several potentially offsetting effects. One important pro-competitive effect of a vertical integration is the elimination of the pre-merger double marginalization, which would tend to decrease downstream prices. However, the integrated firm may also face the incentive to raise its downstream competitors' cost by restricting output in the upstream market. Thus, to appropriately evaluate the overall competitive effects of a vertical integration, it is necessary to weigh the pro- and anti-competitive effects of the transaction given the specific economic circumstances and facts of the case. In this article, published in the ABA Section of Antitrust Law Economics Committee Newsletter, NERA Senior Vice President Dr. Christine Meyer and former Senior Consultant Dr. Yijia (Isabelle) Wang discuss how to use economic models to determine the net competitive effect of a vertical integration.