Digging deep to compete: vertical integration, product market competition and prices

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This article establishes a causal effect of product market competition on vertical integration. I exploit a hitherto unexplored natural experiment in the U.S. coal mining industry and a unique mine-level organizational data set. Following an exogenous increase in product market competition, the incidence of vertical integration fell by 33% within the treatment group relative to the counterfactual. I find novel evidence that transition to the lower degree of vertical integration is driven by competition's reducing market prices by 32% which decreased the incentive to conduct vertical mergers. I discuss several possible interpretations of these changes.


Original languageEnglish
Pages (from-to)683-718
JournalJournal of Industrial Economics
Issue number4
Publication statusPublished - 18 Dec 2017