Vertical Integration with Multi-Product Firms: When Eliminating Double Marginalization May Hurt Consumers

Joint with: Guillermo Marshall.

Abstratct: How do vertical mergers impact consumers? While the elimination of double marginalization caused by vertical integration is often viewed as procompetitive, theory predicts that it may cause price changes that hurt consumers in multiproduct industries. We measure the causal effects of vertical integration on prices by exploiting variation in vertical structure caused by vertical mergers in the carbonated-beverage industry. We find that vertical integration caused a decrease in the prices of products with eliminated double margins and an increase in prices of other products bottled by integrated firms, raising the question of whether consumers necessarily benefit from vertical mergers.

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