Input pricing and common ownership between asymmetric firms

This study investigates how common ownership affects input prices and downstream profits in a vertical market. Although common ownership is often expected to soften competition and increase industry profitability, empirical evidence remains mixed. We show that common ownership can increase input prices and reduce downstream profits. We develop a model in which two downstream firms purchase inputs from a single upstream supplier and sell in markets with heterogeneous demand. Both firms operate in one market, whereas only one serves the other. As common ownership increases, competition weakens in the market served by both downstream firms, reducing that market’s influence on the upstream firm’s pricing decision. When this market is relatively small, the upstream firm places greater weight on the other market and raises the input price. The resulting increase in input costs can outweigh the benefits of softer competition. These results remain robust under nonlinear demand, product differentiation, upstream common ownership, and alternative input pricing schemes.