VERTICAL MERGERS AND MARKET FORECLOSURE

In recent years, antitrust officials have recognized that vertical arrangements can cause competitive harm through two routes: first, they can facilitate collusion among rivals, and second, they can raise rivals’ costs and thereby create barriers to entry or expansion. In this paper, we identify a third and separate pathway: vertical integration allows upstream monopolists to exploit more fully the market power that has already been attained. We explore the implications of this third pathway for antitrust policy.