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The Complicated Simple Economics of Vertical Mergers

Martino De Stefano & Michael A. Salinger

The Journal of Law and Economics2025https://doi.org/10.1086/731887article
AJG 3ABDC A*
Weight
0.37

Abstract

We model a vertical merger of an upstream monopolist with one of two downstream producers engaged in Bertrand competition. The theoretical model suggests a statistic—the net downstream pricing pressure (NDPP)—that can serve as a screen for which vertical mergers are most likely to result in consumer harm. We simulate the effect of a vertical merger for four different functional forms of demand. In the simulations, relatively few vertical mergers lead to price increases that harm consumers. Of those that do, many would be unprofitable absent efficiencies, and many would be with the smaller of the two downstream firms. Moreover, predicted merger effects are not robust to the assumption about the functional form for demand. In contrast, the NDPP statistic is highly correlated with the change in real output for all functional forms.

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https://doi.org/https://doi.org/10.1086/731887

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@article{martino2025,
  title        = {{The Complicated Simple Economics of Vertical Mergers}},
  author       = {Martino De Stefano & Michael A. Salinger},
  journal      = {The Journal of Law and Economics},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1086/731887},
}

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.