Home » Stigler (1951) observed that vertical integration was found sometimes in industries for reasons having little or nothing to do with his industrial…

Stigler (1951) observed that vertical integration was found sometimes in industries for reasons having little or nothing to do with his industrial…

Stigler (1951) observed that vertical integration was found sometimes in industries for reasons having little or nothing to do with his industrial life cycle (ILC) hypothesis. Writing soon after World War II, he attributed a spate of vertical mergers to the market’s inability to clear in the proximity of marginal value-product or marginal cost due to wartime price controls. For example, pricecontrolled steel firms bought non-price-controlled fabricated steel products companies (users of steel). What economic consideration(s) likely contributed to such mergers? a. The controlled price was below the free market-clearing price, resulting in excess demand and inadequate supply to meet that demand. b. Vertical merger was a way to capture the unfulfilled consumer and supplier surplus. c. The would-be integrated company (e.g. steel maker cum fabricator) enjoyed an asymmetric information advantage over the price controllers that enabled it to work around the controls. d. All of the above 

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