A Basic Model for Analyzing Vertical Mergers

Analytics

According to the book "The Emperors of Chocolate," Hershey supplied 90% of the U.S. milk chocolate market in 1947.¹ Hershey operated as a vertically integrated chocolate candy manufacturer, producing and selling chocolate to other candy manufacturers. This raises the question: Why did this dominant and vertically integrated firm not foreclose on its non-integrated competitors? In other words, Hershey could have ceased selling chocolate to all its competitors, such as Reese’s Peanut Butter Cup, to increase the sales of its own chocolate candies.