In this post, I want to talk a bit about vertical integration and some cool papers I’ve read on the topic.

To begin with, we can think of a vertical structure being a situation where we have upstream and downstream firms. Upstream firms tend to be manufacturers, or other firms high up in the production process, whilst downstream firms are retailers or firms lower down in the production process. An industry where manufacturers and retailers are non-integrated (separate) can lead to an incentive problem, whereby both firms want/need to make a profit but end up setting too high a price.

Let’s think about this more carefully. [...]