DIVISIONALIZATION AND HORIZONTAL MERGERS IN A VERTICAL RELATIONSHIP*

Tomomichi Mizuno

Manchester School, 2009, vol. 77, issue 3, 317-336

Abstract: In this paper we evaluate the effects of horizontal mergers in a vertical relationship. Each downstream firm can create autonomous divisions. We show that an infinitesimal merger of downstream firms may exhibit a positive welfare effect if the upstream and downstream sectors are sufficiently unconcentrated. However, any merger of upstream firms reduces social welfare. Moreover, a decrease in the concentration in the upstream stage (respectively downstream stage or non‐merging stage) makes the welfare effects of the merger in the upstream stage (respectively downstream stage or non‐merging stage) less negative (respectively ambiguous or ambiguous).

Date: 2009
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