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Federal Reserve Bank of Cleveland
Economic Review
The effects of vertical integration on competing input suppliers
R. Preston McAfee

When a downstream firm buys an input supplier, it can reduce its costs of using that input. Other input suppliers typically respond by pricing more aggressively, given the demand reduction, which tends to lower input supply costs to other firms. Thus, a vertical merger may lower rivals' costs instead of raising them.

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R. Preston McAfee, "The effects of vertical integration on competing input suppliers" , Federal Reserve Bank of Cleveland, Economic Review, issue Q I, pages 2-8, 1999.
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