Beyond "Horizontal" and "Vertical": The Welfare Effects of Complex Integration

45 Pages Posted: 5 May 2023

See all articles by Margaret Loudermilk

Margaret Loudermilk

U.S. Department of Justice

Gloria Sheu

Board of Governors of the Federal Reserve System

Charles Taragin

Board of Governors of the Federal Reserve System

Date Written: January, 2023

Abstract

We study the welfare impacts of mergers in markets where some firms are already vertically integrated. Our model features logit Bertrand competition downstream and Nash Bargaining upstream. We numerically simulate four merger types: vertical mergers between an unintegrated retailer and an unintegrated wholesaler, downstream "horizontal" mergers between an unintegrated retailer and an integrated retailer/wholesaler, upstream "horizontal" mergers between an unintegrated wholesaler and an integrated retailer/wholesaler, and integrated mergers between two integrated retailer/wholesaler pairs. We find that mergers that have both horizontal and vertical characteristics typically harm consumers. We apply the model to the Republic/Santek merger as a real-world example.

Keywords: Bargaining models, Merger simulation, Vertical markets, Vertical mergers

JEL Classification: L13, L40, L41, L42

Suggested Citation

Loudermilk, Margaret and Sheu, Gloria and Taragin, Charles, Beyond "Horizontal" and "Vertical": The Welfare Effects of Complex Integration (January, 2023). FEDS Working Paper No. 2023-5, Available at SSRN: https://ssrn.com/abstract=4438760 or http://dx.doi.org/10.17016/FEDS.2023.005

Margaret Loudermilk (Contact Author)

U.S. Department of Justice ( email )

United States

Gloria Sheu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Charles Taragin

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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