Vertical Mergers in Multi-product Industries and Edgeworth's Paradox of Taxation

Michael Salinger

Journal of Industrial Economics, 1991, vol. 39, issue 5, 545-56

Abstract: When a two-product monopolist merges with one of its suppliers, thus eliminating the double marginalization for one of its goods, three qualitative effects on downstream prices can result. The monopolist might (1) lower both prices, (2) lower the price of the good for which the double marginalization is eliminated and raise the price of the other good, or (3) raise both prices. Since some and even all prices can increase, mergers of successive monopolists in multiproduct industries do not necessarily improve welfare. This result differs from the single product case, in which such mergers necessarily increase welfare. Copyright 1991 by Blackwell Publishing Ltd.

Date: 1991
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