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Vertical Integration and Downstream Collusion Vertical Integration and Downstream Collusion * Preliminary Version
We investigate the effect of a vertical merger on downstream firms' ability to collude in a repeated game framework. We show that a vertical merger has two main effects. On the one hand, it increases the industry profits avoiding double marginalization, increasing the stakes of collusion. On the other hand, it creates an asymmetry between the integrated firm and the unintegrated competitors. The integrated firm, accessing the input at marginal costs, faces higher profits in the deviation phasefatcat:veef24glf5fqvliwttp7qlt7e4