Horizontal Merger and Vertical Differentiation

The effects of merger have usually been examined in the context of homogeneous goods, and are unambiguously established. This paper deals with merger in vertically differentiated industries, presenting two models, one with two firms, and one with three firms. Results depend on the number of previous firms in the industry, and on the qualities produced by the merging firms. However, some results about the welfare effects of merger differ from the standard ones, which is mainly due to the nature of competition in a vertical differentiation set.