How Does Vertical Integration Affect the Incentive to Collude? A Study of Upstream Collusion in Vertically Related Markets

How Does Vertical Integration Affect the Incentive to Collude? A Study of Upstream Collusion in Vertically Related Markets(2025.2)

Masato Nishiwaki(Associate Professor, Graduate School of Economics, University of Osaka and Visiting Researcher of the Competition Policy Research Center)

Abstract

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The concern that vertical integration facilitates collusion has been stated in merger guidelines of many jurisdictions. However, the effects of vertical integration on collusion have not been well understood and documented. This paper studies the relationship between vertical integration and upstream collusion by focusing on a cement cartel in Japan. A model of firms' behavior in vertically related markets is constructed and estimated. The counterfactual analysis shows that when vertical integration is eliminated altogether, the critical discount factor increases, meaning vertical integration facilitated collusion. It also shows that some hypothetical vertical mergers hinder collusion, highlighting the importance of merger characteristics.

CPDP100-E(368 KB)