Last Week in Tech Policy #66: The Fate of Vertical Mergers

Mergers are often  met with skepticism, as intuitively there are less players in the game after the transaction is complete.  Due to the large infrastructure costs and high value of network effects, mergers play a significant role in the telecommunications industry. Pooling resources together can create efficiencies, but there is a fear of harmful effects on consumers- whether by an increase in price or a decline in product quality.

Mergers can be broken up into two categories, vertical and horizontal. A vertical merger occurs between two companies that operate at separate steps of production, typically where transactions costs have driven integration. In horizontal mergers, parties operate in the same market and the combination will eliminate a competitor.

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