Impact of vertical mergers on industry profitability: An empirical evaluation

Vertical integration has become an important business strategy to respond to the needs of a consumer-driven marketing system. Although one of the perceived benefits of vertical ownership integration is improved profitability of the integrated firm, empirical literature mostly ignores this issue. Using a sample of U.S. food manufacturing industries, this study examines the impact of vertical mergers on profitability. Findings show that vertical mergers negatively impact profits. This may be due to the failure of vertical mergers to create differential advantages, such as cost savings, for the integrated firm.