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The Competitive Impact of Vertical Integration by Multiproduct Firms

Author

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  • Fernando Luco
  • Guillermo Marshall

Abstract

We study the impact of vertical integration on pricing incentives in multiproduct industries. To do so, we exploit recent variation in vertical structure in the US carbonated-beverage industry. While the elimination of double marginalization with vertical integration is normally characterized as procompetitive, economic theory predicts that it may cause anticompetitive price increases in multiproduct industries. We indeed find that vertical integration causes price decreases in products with eliminated double margins but price increases in the other products sold by the integrated firm. These results provide new evidence of anticompetitive effects of vertical mergers.

Suggested Citation

  • Fernando Luco & Guillermo Marshall, 2020. "The Competitive Impact of Vertical Integration by Multiproduct Firms," American Economic Review, American Economic Association, vol. 110(7), pages 2041-2064, July.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:7:p:2041-64
    DOI: 10.1257/aer.20180071
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    References listed on IDEAS

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    1. Nathan H. Miller & Matthew C. Weinberg, 2017. "Understanding the Price Effects of the MillerCoors Joint Venture," Econometrica, Econometric Society, vol. 85(6), pages 1763-1791, November.
    2. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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