Anticompetitive Vertical Mergers Waves

We develop an equilibrium model of vertical mergers. We show that, when a wave of mergers removes all upstream firms, the competitive forces on the upstream market may collapse. Indeed, when an integrated firm supplies the upstream market, it internalizes the fact that customers lost on the downstream market can be recovered via the upstream market. Thus, the upstream supplier charges higher downstream prices. Its integrated rivals benefit from this behavior, they may therefore not undercut on the upstream market. This mechanism leads to anticompetitive waves of mergers