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Author ORCID Identifier
https://orcid.org/0009-0005-3492-4564
Date Available
6-11-2027
Year of Publication
2026
Document Type
Doctoral Dissertation
Degree Name
Doctor of Philosophy (PhD)
College
Business and Economics
Department/School/Program
Economics
Faculty
Anthony Creane
Faculty
Steven Lugauer
Abstract
This dissertation studies how vertical integration affects prices, product variety, and consumer welfare in a major consumer packaged goods market. Using variation generated by large-scale upstream–downstream consolidations undertaken by two major manufacturers, the analysis combines difference-in-differences identification with structural demand estimation and a merger incidence framework to quantify how vertical integration affects consumers—both on average and across the income distribution.
The first chapter establishes the causal effects of vertical integration on prices and product variety using a difference-in-differences framework that exploits variation created by integration decisions tied to long-standing historical distribution boundaries rather than contemporaneous market conditions. Vertical integration generated statistically significant price reductions of approximately 2% for both firms, consistent with the elimination of double marginalization. The variety effects are substantial and exhibit striking firm-level heterogeneity: both firms expanded size and packaging format variety, while flavor strategies diverged sharply—one firm streamlined its portfolio toward core offerings while the other expanded substantially. This divergence, consistent across all retail channels and specifications, demonstrates that vertical integration enables firm-specific optimization rather than imposing uniform market changes.
The second chapter quantifies the consumer welfare implications of these price and variety changes using a structural demand model that allows product variety to enter consumer utility directly. Consumer surplus increased by $0.56 per shopping trip in Firm A regions and $0.83 per trip in Firm B regions, representing 10–14% of average trip-level category expenditures. A welfare decomposition reveals that approximately 70% of consumer gains stem from price reductions while 30% derive from expanded product variety—establishing variety as a quantitatively significant welfare channel that traditional merger evaluation overlooks. A supply-side decomposition further reveals that the two firms achieved these benefits through fundamentally different mechanisms: Firm A through genuine marginal cost reductions and Firm B through deliberate markup compression. The chapter derives empirically grounded antitrust harm thresholds, proposing a three-tier framework for when variety reductions constitute de minimis, presumptively significant, or presumptively anticompetitive effects.
The third chapter examines the distributional incidence of vertical integration, asking whether the aggregate consumer welfare gains documented in the preceding chapter are shared evenly across income groups. Building on household-level consumer surplus estimates from the structural demand model with endogenous variety, the analysis computes welfare changes separately for low, middle, and high income households in the NielsenIQ Consumer Panel and decomposes each group’s gains into price and variety components. For one firm, point estimates decline monotonically with income, a pattern consistent with progressive incidence. For the other, the pattern is roughly proportional across middle and high income households with a small negative estimate at the bottom of the distribution. The decomposition suggests that cross-group variation in welfare incidence is more closely associated with the variety channel than the price channel: price gains are positive and similar in magnitude across groups, while variety gains differ substantially and track each firm’s distinct variety strategy. Together, the three chapters provide an integrated empirical framework for evaluating vertical mergers that moves from causal identification to aggregate welfare quantification to distributional analysis, offering both methodological tools and policy-relevant findings for antitrust practitioners.
Digital Object Identifier (DOI)
https://doi.org/10.13023/etd.2026.319
Archival?
Archival
Recommended Citation
Enyetornye, Justice, "Vertical Integration in Consumer Packaged Goods: Causal Evidence, Welfare Quantification, and Distributional Incidence" (2026). Theses and Dissertations--Economics. 74.
https://uknowledge.uky.edu/economics_etds/74
