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Articles in Press

Welfare-Improving Vertical Mergers in the Presence of Downstream Product Differentiation

  • Author Wei-Jen Wen, Wen-Chieh Lee, and Wen-Hsien Huang
  • Abstract This paper investigates the welfare effect of a vertical merger in a market with downstream product differentiation. Previous studies find that a merger in this setting tends to be welfare-reducing if the merged firm exits the upstream market and the downstream goods are highly differentiated. The reason is that a reduction in the number of upstream suppliers raises the input price and lowers downstream production. This paper departs from previous studies by considering the case in which the merged firm continues to trade in the upstream market. A vertical merger is always procompetitive with this assumption change because, in this case, the merged firm sells inputs in the upstream market if the downstream goods are sufficiently differentiated.
  • Link http://www.econ.sinica.edu.tw/UpFiles/2013090214141704234/Messagess_Flies2013100417174743120/201912刊登定稿.pdf