We study the price and welfare effects of a merger of firms producing unidirectional complements: a firm is producing a product (called an optional good) that is valuable only if it is consumed with the other product (called a base good) produced by another firm. Under the assumption that there...

This paper provides two characterizations of the retailer’s markup relative to the manufacturer’s markup in vertical relationships with homogeneous manufacturers and homogeneous retailers. We first show that retailer’s relative markup is equal to the ratio of the retail pass-through to the...

Consider the classical double marginalization problem of single-product successive monopolies. We show that the ratio of the cost pass-through at the final sale relative to that at the wholesale level is characterized by the curvature of inverse demand in the final market. We also apply...