Vertical Integration With Multiproduct Firms: When Eliminating Double Marginalization May Hurt Consumers

Abstract

How do vertical mergers impact consumers? Though often presumed to eliminate double marginalization and generate efficiencies, theory predicts that vertical integration in multiproduct industries may cause price changes that hurt consumers even in the absence of market foreclosure. 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, but a price increase on average, raising the question of whether consumers necessarily benefit from vertical mergers.