VERTICAL MERGERS AND PRODUCT DIFFERENTIATION <link rid="fn21">-super-* </link>

This paper presents an equilibrium theory of vertical mergers that incorporates strategic behaviors in the Hotelling-type location model. This enables one to consider the relationship between downstream firms' strategies for product differentiation and vertical integration. I show that vertical integration enhances the degree of product differentiation of the integrated firm. Under some conditions, partial integration arises in equilibrium, which may increase the profit of the nonintegrated downstream firm. The paper also discusses the welfare implications of vertical integration. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.