35 Pages Posted: 23 Sep 2015 Last revised: 6 May 2016
Date Written: May 5, 2016
Antitrust regulators are concerned that vertical integration may allow a dominant firm in one market to lever market power into another market. Theoretically, the effects of vertical integration on other firms in the market are ambiguous. This paper studies how a dominant search engine Google in the upstream market of Internet search enters into different downstream markets. I find that Google's vertical integration either decreases or increases clicks to other sites, depending upon whether firms compete in pricing or quality and whether consumers are very price-sensitive. The results have direct public policy implications as regulators determine antitrust policy in newly emerging markets.
Keywords: antitrust, tying, online, Internet, consumer search, vertical integration, Google
JEL Classification: L40, L86
Suggested Citation: Suggested Citation