Upstream merger in a successive oligopoly: Who pays the price?

•Theoretical and empirical analysis of an upstream merger.•Theoretical predictions; higher prices paid by downstream firms, no price effect at consumer level.•Empirical findings; the merger led to i) higher average prices from the downstream to the upstream firms, ii) no effect on consumer prices. This study applies a successive oligopoly model, with an unobservable non-linear tariff between upstream and downstream firms, to analyze the possible anti-competitive effects of an upstream merger in the Norwegian food sector (specifically, the market for eggs). The theoretical predictions are that an upstream merger may lead to higher average prices paid by downstream firms and at the same time no changes in the prices paid by consumers. Consistent with the theoretical predictions it is found that the merger had no effect on consumer prices, but led to higher average prices paid by the downstream firms to the merged firm.