What are the effects of vertical mergers on competition?

Vertical mergers occur when two companies that are related in the supply chain merge. For instance, a company that produces a component of a product may merge with the company that actually assembles the product. In California, the effects of vertical mergers on competition are regulated by antitrust law. Generally, antitrust law looks to promote competition in the marketplace. Vertical mergers can have both positive and negative effects on competition. One potential positive effect is that the merged company will be more efficient, saving money and allowing them to better compete against other companies. Additionally, the merged company could use the increased efficiency to lower prices, offering more competitive product offerings. On the other hand, vertical mergers can have a negative effect on competition. Because the merged company is larger and more efficient, it is sometimes able to have monopsony or monopoly power. This means the merged company is able to control pricing and the terms of sale for products in the industry, stifling competition. In California, the Department of Justice plays an important role in promoting competition in the marketplace. The Department of Justice reviews proposed vertical mergers and will challenge them if the merger is anticompetitive. The Department of Justice also investigates allegations of anticompetitive practices that result from vertical mergers. By doing this, California seeks to ensure that vertical mergers have a positive effect on competition.

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What are the effects of vertical mergers on competition?

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