Cross-Market Mergers with Common Customers: When (and Why) Do They Increase Negotiated Prices?

The effects of cross-market mergers of upstream suppliers in the presence of common customers are very controversial. Some argue that products will be substitutes for intermediaries. Others say that because products are complements to customers, they must also be complements for intermediaries. I contribute to this debate by showing that two products can be complements for customers but substitutes in profits for intermediaries. The reason is that they can be substitutable in the traffic generated for other items in intermediaries’ lineups. This result leads to novel antitrust recommendations and can explain why cross-market mergers of hospitals have increased insurers’ prices.