A note on horizontal mergers in vertically related industries

We analyze horizontal mergers in vertically related industries. In a successive Cournot oligopoly model, we first compare the profitability of mergers in the upstream and in the downstream sectors. We characterize conditions on the concavities of the input supply function and the final demand function such that, ceteris paribus, an upstream merger is more protable than a downstream merger. We then provide a simple comparison of the relative losses of firms in an industry induced by a merger in the other sector when the degrees of concavity of the upstream and downstream demand functions are constant. We finally discuss the various mechanisms in action under non-constant degrees of concavity.