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Double Markups, Information, and Vertical Mergers

Publication ,  Journal Article
Loertscher, S; Marx, LM
Published in: Antitrust Bulletin
September 1, 2022

In vertical contracting models with complete information and linear prices, double markups that arise between independent firms provide an efficiency rationale for vertical mergers since these eliminate double markups (EDM). However, the double markups vanish even without vertical integration if the firms are allowed to use two-part tariffs. Hence, the efficiency rationale for vertical mergers in models of complete information requires restrictions on the contracts that firms can use. In a sense, with complete information, two-part tariffs are simply too powerful. If instead one allows incomplete information and removes the restriction on contract forms, then vertical mergers continue to have an effect that is analogous to EDM, but they also have the potential to affect the overall efficiency of the market to the detriment of society. Consequently, the social surplus effects of vertical integration depend on the underlying market structure, and vertical mergers are, in and of themselves, neither good nor bad. We illustrate through an example that with incomplete information, the private benefits from vertical integration tend to be excessive; that is, vertical mergers remain profitable even when they are socially harmful.

Duke Scholars

Published In

Antitrust Bulletin

DOI

EISSN

1930-7969

ISSN

0003-603X

Publication Date

September 1, 2022

Volume

67

Issue

3

Start / End Page

434 / 441

Related Subject Headings

  • 1801 Law
 

Citation

APA
Chicago
ICMJE
MLA
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Loertscher, S., & Marx, L. M. (2022). Double Markups, Information, and Vertical Mergers. Antitrust Bulletin, 67(3), 434–441. https://doi.org/10.1177/0003603X221103115
Loertscher, S., and L. M. Marx. “Double Markups, Information, and Vertical Mergers.” Antitrust Bulletin 67, no. 3 (September 1, 2022): 434–41. https://doi.org/10.1177/0003603X221103115.
Loertscher S, Marx LM. Double Markups, Information, and Vertical Mergers. Antitrust Bulletin. 2022 Sep 1;67(3):434–41.
Loertscher, S., and L. M. Marx. “Double Markups, Information, and Vertical Mergers.” Antitrust Bulletin, vol. 67, no. 3, Sept. 2022, pp. 434–41. Scopus, doi:10.1177/0003603X221103115.
Loertscher S, Marx LM. Double Markups, Information, and Vertical Mergers. Antitrust Bulletin. 2022 Sep 1;67(3):434–441.
Journal cover image

Published In

Antitrust Bulletin

DOI

EISSN

1930-7969

ISSN

0003-603X

Publication Date

September 1, 2022

Volume

67

Issue

3

Start / End Page

434 / 441

Related Subject Headings

  • 1801 Law