We investigate the effects and incentive of vertical mergers in a supply chain with three types of firms (i.e. suppliers, manufacturers and integrated firms). Integrated firms can sell both intermediate and final goods, while suppliers and manufacturers can sell only intermediate or final goods, respectively. Whether selling intermediate goods to other manufacturers is introduced as the integrated firms’ endogenous decisions. We find that a vertical merger always decreases the price of final products, both the production quantity and the profi...
