Answer to Question #123048 in Economics for Kelvin

Question

Assume a market consists of two upstream firms, and they are the sole suppliers of their respective products. Each of these monopolists sell at a linear price to one downstream firm duopolies each. What would be the effect of vertical integration on the final good of price ? Should competition authorities prohibit vertical mergers that lead to higher input prices ?

Answer 1

Vertical integration will decrease the price of the final good. The competition authorities shouldn't prohibit vertical mergers that lead to higher input prices, because it is inefficient merger if it leads to higher input prices.