Abstract:

In order to reduce costs and optimize the allocation of resources， vertical merger and acquisition has become an important mode of capital operation and business location. Vertical mergers and acquisitions should not only consider price coordination， but also quality coordination and quality and price coordination. How does a firm's vertical merger affect the product quality and price of the acquiring and non-acquiring firms？ Will such mergers and acquisitions improve social welfare？Various types of manufacturers such as integrated enterprises， intermediate suppliers and downstream manufacturers are introduced into the Salop model， and the impact of vertical mergers and acquisitions on product pricing， product quality and social welfare is analyzed by constructing a multi-stage game model. It is found that the integration of firm is not participate in the case of intermediate goods supply， the vertical mergers and acquisitions in the market can improve the quality of the final product of M&A and pricing， but reduces the M&A enterprise product quality and pricing. Look from the industry as a whole， vertical merger behavior leads to market products， on average， a decrease in the level of quality and pricing. If consumers attach high （low） enough importance to product quality， vertical M&A will damage （improve） consumer surplus， which will lead to a decline （rise） in the overall social welfare level. The situation is analyzed that integrated firms participate in the supply of intermediate goods， and it is found that vertical M&A between upstream firms and downstream firms will lead to the improvement of average product quality. And the integration of enterprises and the downstream enterprises mergers and acquisitions is to cause a decline in the average level of product quality. The results of this study have important reference value for government censorship enterprise vertical mergers and acquisitions.

Key words: vertical merger, product quality, pricing decision, social welfare, salop model