Merging a store with its supplier—usually seen as a way to lower prices—actually leads to higher prices if they were already sharing revenue.
April 1, 2026
Original Paper
The Price Effect of Vertical Mergers when Suppliers and Retailers Share Revenues
SSRN · 6507104
The Takeaway
Regulators often allow vertical mergers because they supposedly eliminate 'double marginalization' (two markups). This paper reveals that if the companies had a pre-existing revenue-sharing deal, the merger actually creates upward price pressure, reversing a central assumption in global antitrust law.
From the abstract
Vertical mergers eliminate double marginalization (EDM), potentially creating incentives for the merged entity to lower prices. Absent foreclosure incentives, vertical mergers are therefore widely presumed to be procompetitive. We show, however, that this conclusion depends critically on the pre-merger wholesale pricing arrangement between the merging firms. When pre-merger wholesale pricing involves revenue sharing, a vertical merger creates an upward price pressure. Unless the EDM effect is s