Abstract: This paper demonstrates how a profitable, downstream merger can lower themergedentity’sinputprice while raising that of its rivals, leading to an adverse effect on final consumers. This novel ‘waterbed’resultissurprisingandvery different to the unilateral and co-ordinated effects usually considered in the analysis of horizontal mergers. When demand is linear, all mergers involving a powerful buyer harm overall welfare even though the merger leads to marginal cost reductions that substantially increase output by the merged entity
