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Vertical integration and social welfare: Evidence from China's electric vehicle industry

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  • Li, Guodong
  • Tan, Yong
  • Zhu, Ying

Abstract

This paper examines the effect of vertical integration between EV manufacturers and EV battery suppliers on social welfare in China. Leveraging a comprehensive dataset covering province–model–quarter level information on EV prices, sales, attributes, and EV manufacturers’ vertical integration status, we document that vertically integrated EV manufacturers tend to price their products more competitively and have larger market shares than non-integrated counterparts. We develop a market equilibrium model in which EV manufacturers endogenously make their integration and pricing decisions. By estimating this structural model, we find that vertical integration enables firms to internalize upstream margins and thereby reduce their exposure to input cost volatility. Counterfactual experiments illustrate that vertical integration increases both consumer surplus and aggregate social welfare. These welfare gains are particularly pronounced in the scenarios with high upstream cost volatility, highlighting the buffer effect of integration in the supply chain.

Suggested Citation

  • Li, Guodong & Tan, Yong & Zhu, Ying, 2026. "Vertical integration and social welfare: Evidence from China's electric vehicle industry," China Economic Review, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:chieco:v:97:y:2026:i:c:s1043951x26000490
    DOI: 10.1016/j.chieco.2026.102699
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