Vertical integration of successive monopolists (with fixed production coefficients) has long been known to provide merging monopolists with greater profit and their customers with greater outputs at lower prices. We contended in our earlier papers that similar welfare attributes apply to mergers between monopolist input suppliers and Cournot-type oligopolists.1 But what is the result when the input supplier is also an oligopolist? The present paper answers this question. It demonstrates, in particular, that when vertical integration of successive oligopolists is mutually profitable, industry output increases and product price is lowered. The welfare gain stemming from vertical integration is further shown to hold not only under Cournot oligopoly but a Stackelberg leader-follower type of oligopoly. I. Independent Upstream-Downstream Oligopolists

Our 1972 paper originally proposed that discriminatory outputs are necessarily greater than nondiscriminatory outputs under conditions of spatial monopoly. This proposition was proved under a linear demand function and in a sense generalized in the same paper by intuitive speculation which indicated that the result would hold for non-linear demand cases as well. That speculation was confirmed later in our 1975 book, where we proved that it holds for all non-linear demands of the particular form given by