Vertical mergers with input substitution: Double marginalization, foreclosure and welfare

We consider differentiated duopolists that face symmetric linear demands and produce using Cobb–Douglas technologies with a monopolized input competitively supplied input. A merger between the monopolist either firm eliminates double marginalization but – unlike? fixed-proportions can lead to foreclosure reduce welfare. The same occur under CES technology greater substitutability than Cobb–Douglas. With identical technologies, merged raises rival’s cost by more, welfare effects are worse, when it controls constitutes low rather high share of costs. different be non-monotonic in input’s • study vertical mergers firms imperfectly substitute from monopoly one foreclose its rival fully or partly. Foreclosure greatest costs is low. Consumer total fall rise, as eliminated. In setting no substitution, always beneficial.