Integrating the Literature: Theory and Evidence from a Reassessment of the Empirical Research on Vertical Integration
Abstract
This paper reexamines the empirical literature on vertical integration to assess whether, as some commentators have suggested, it suggests that increased antitrust scrutiny of vertical integration is warranted. Following decades of theoretical and empirical consensus suggesting procompetitive welfare effects from vertical integration, more recent reviews of the empirical literature have reached starkly different and contradictory conclusions about its implications for antitrust policy. Thus, we undertake a comprehensive reassessment of the empirical literature using systematic criteria based on welfare outcomes to categorize papers as providing evidence of procompetitive, anticompetitive, or neutral effects of vertical integration and ranking papers based on the strength of their empirical methodology. We find many instances of procompetitive effects, some instances of neutral effects, and few instances of anticompetitive effects. When attention is limited to evidence from the strongest identification strategies, we find only procompetitive or neutral effects, with most papers indicating procompetitive effects. We then turn to two simple theoretical models of vertical integration popular in the economic literature to assess whether economic theory can help explain this pattern of observed results. Consistent with our review, we find that under standard assumptions, the elimination of double marginalization tends to dominate or limit anticompetitive effects. We interpret our results as providing evidence in favor of the efficacy of traditional enforcement patterns and the importance of distinct treatment of vertical versus horizontal mergers by antitrust enforcers.
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