The motives for vertical mergers can be seen in the pic. What does the "market power - Double marginalisation" regard?

Consider an industry with two production stages: 1. Production stage (upstream) 2. Retail stage (downstream) Consider two cases: 1. Each stage is served by a single monopolist (two separate firms). In each stage monopolists set the monopoly price  mark-up = P-MC>0. But the mark-up of the producer means that the input is more expensive for the retailer, hence mark-up producer = additional marginal cost for the retailer. On top of this the retailer also charges a mark-up over the (higher) MC  Double mark-up. 2. Both stages served by a single firm (vertical integration). Cares only about marginal cost of production. Charges the mark-up only once!! Produces higher output at lower price, increase producer surplus (i.e. Abnormal profits ) by avoiding the double mark-up. In case 2 output is potentially higher and price lower than in case 1! Single monopolisits distributes resources more efficiently across stages. By avoiding the double mark-up a vertically integrated firm can be better off than two non-integrated firms  one of the strongest arguments in favor of vertical integration NB: double marginalization only occurs if in both stages monopoly (or oligopoly or cartel  i.e. some market power)