Elimination of double marginalization (EDM) is an assumption in competition policy derived from IO economic theory.

This assumption is often used to justify  lenient enforcement in the context of vertical mergers.

EDM assumes that a company which buys a customer or supplier will reduce the profitit retains for each product sold. So instead of two pre-merger companies with market power each charging prices above competitive levels, the vertically integrated (post-merger) entity will only charge one excess, at prices that will be lower overall. The combined entity, the theory argues, will reduce the overall price so as to sell more products, and thus increase its profits through higher quantities sold.

In real life cases of vertical mergers, authorities typically do not establish the actual existence of EDM, but instead assume it takes place, and that it benefits consumers. This assumption is often generalized in practice to all cases of vertical integration even if in theory it requires pre-existing monopoly power at both the upstream and downstream level. Yet the assumption is contradicted by business and legal realities, and empirical studies on the matter have produced mixed results.

There are two main business and legal reasons why the EDM assumption is incorrect.

First, business units are generally run in ways that maximise each unit’s profits, for example as seen in business units’ separate Profit & Loss accounts, used for example to determine managers’ bonuses. So the assumption that suppliers would forego part of a profit margin for joint gain of the combined entity does not correspond to standard business reality.

Second, if the economic activity or supply chain is organized across different jurisdictions, shifting profit from one business unit to another (for example, partially foregoing upstream profitability to recoup greater profits downstream) would amount to profit-shifting that could be against tax laws, if the two activities take place in different countries.

A frequently cited recent empirical work on EDM is “The Competitive Impact of Vertical Integration by Multiproduct Firms” by Fernando Luco & Guillermo Marshall, 2020. See also Policy Failure: The Role of “Economics” in AT&T-Time Warner and American Express by Marshall Steinbaum, 2018. 

Part of ideological capture. 

Market regulators seeking to challenge mergers or abuses of dominance generally must show actual or potential harm, before they can act, or convince courts to act. If sufficient doubt can be cast on theories of harm, this can block enforcement.

Industrial Organization (IO) economics has been instrumentalised to construct “economics obstacle courses” (or “IO obstacle courses”) that prevent regulators and complainants having their theories of harm (and adequate remedies) accepted. Because IO economics is essentially unregulated, it admits wide leeway for selection of assumptions, inputs or models to maximise doubt, so as to block regulation, oversight and enforcement. IO obstacle courses can be targeted parts of broader strategies called “Spamming the Regulator,” seeking to entangle them in complexity and to overwhelm their capacity to act in the public interest.

Example: Google / DoubleClick

Google’s acquisition of the advertising technology company DoubleClick in 2008 is widely regarded as one of the most harmful acquisitions of the digital age, enabling Google to monopolise the adtech (advertising technology) stack that connects online publishers with advertisers, and is the primary monetisation mechanism for the internet.

The U.S. Federal Trade Commission (FTC) and the European Commission initially challenged the DoubleClick transaction, after market rivals and public interest groups proposed several theories of potential and actual harm.

However, the acquisition was approved unconditionally. In a 2008 paper, nine FTC economists described how regulators had failed to get through a five-stage IO obstacle course: five “stringent” conditions deemed necessary to be able to show that the combined entity would be likely to leverage vertical market power from one market to another, causing harm. The US and EU authorities ended up asserting that Google would have neither the incentive nor the ability to harmfully monopolise key areas. A 2025 paper, Google’s Hidden Empire, which coined the term “IO Obstacle Course,” explores the case and shows how experience has subsequently shown the original fears about harmful monopolisation to be well-founded.