Anticompetitive Vertical Integration by a Dominant Firm.

Backward vertical integration by a dominant firm into an upstream competitive industry causes both input and output prices to rise. The dominant firm's cost advantage may or may not offset the negative effect to higher prices on social welfare. Whether it does depends on a simple indicator derived from input and output market shares and the degree of prior vertical integration. A vertical merger is equivalent to a hypothetical horizontal merger, suggesting that vertical merger policy for this industry structure should be similar to horizontal merger policy.