Downstream merger with upstream market power

We examine how a downstream merger a2ects input prices and, in turn, the pro3tability of a such a merger under Cournot competition with di2erentiated products. Input suppliers can be interpreted as ordinary upstream 3rms, or trade unions organising workers. If the input suppliers are plant-speci3c, we 3nd that a merger is more pro3table than in a corresponding model with exogenous input prices. In contrast to the received literature, we 3nd that it can be more profitable to take part in a merger than being an outsider. For 3rm-speci3c input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger. c