The Possibility of Social-Surplus-Reducing Vertical Mergers

Despite the common view that vertical mergers are generally less problematic than horizontal mergers, it is also recognized that they are not always innocuous. We discuss and explain a remarkably general scenario in which a vertical merger reduces social surplus. In a setup in which suppliers’ costs are their own private information, if the pre-integration market involves a buyer using an efficient procurement process to purchase from the suppliers, then the post-integration market will be les