Incomplete Vertical Integration: Evidence from the U.S. Carbonated Soft Drink Industry

67 Pages Posted: 30 Nov 2020

See all articles by Takanori Adachi

Takanori Adachi

Kyoto University - Graduate School of Management; Kyoto University - Graduate School of Economics

Date Written: October 7, 2020

Abstract

This paper empirically illustrates a new aspect of vertical integration that may hurt consumer welfare other than foreclosure and misuse of rivals' information by considering the possibility that a vertical merger turns out detrimental to the merged entity. My empirical results using data from the U.S. carbonated soft drink industry show that one company's vertical merger is consistent with the efficiency-based view: it raised its market shares, lowering its product prices. In addition, whether its bottler also distributes another company's products has little effects on its prices and market shares. These results hold qualitatively if heterogeneous time trends and non-uniform weighting across the treatment and the control groups. However, it is less apparent that the other big company's vertical merger improved its internal coordination. As opposed to the efficiency-based view of vertical integration, its prices did not decrease, though its market shares rose. More importantly, its vertical merger increased another company's shares by 5 to 6 percent (with a slight price increase) in counties where it takes charge of that company's distribution, and this effect is statistically significant, remaining true with the robustness checks described above. This contrast is also observed in a complementing event study analysis.

Keywords: Vertical Mergers, Difference-in-Differences, Event-Study Analysis

JEL Classification: L13, L49, L66

Suggested Citation

Adachi, Takanori, Incomplete Vertical Integration: Evidence from the U.S. Carbonated Soft Drink Industry (October 7, 2020). Available at SSRN: https://ssrn.com/abstract=3699856 or http://dx.doi.org/10.2139/ssrn.3699856

Takanori Adachi (Contact Author)

Kyoto University - Graduate School of Management ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Kyoto University - Graduate School of Economics ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

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