The Decision Strategies on Merger of Upstream and Downstream Firms

The decision strategies on merger of the upstream and dowstream firms in an industry are discussed in this paper. A competition model with two firms in both upstream and downstream is established. The analysis will show that when the upstream and downstream enterprises take the horizontal and vertical merging as strategies variables, the subgame perfect equilibrium is the upstream and downstream enterprises' horizontal merger respectively. Furthermore, the paper focuses on the conflict of interests among the enterprises, the government and the consumers in the merger.