Anti-Dismal blogged today on how vertical integration can reduce the double mark-up problem of monopolies. The one thing worse than a monopoly is dealing with a chain of monopolies. Buyers must pay a monopoly price to each step in the chain.
If these monopolies were to merge into one single monopoly, the monopolist would charge a lower single monopoly price. The vertical integration captures the deadweight social loss of the chain of monopoly prices. Monopoly profits are higher, yet the monopoly price paid by buyers is lower.
This blog post reminded me of a particularly astute short article in the Economist 15 or so years ago analysing Benazir Bhutto’s husband as a solution to the chain of monopolies problem.
When Benazir Bhutto became Prime Minister of Pakistan for the first, she appointed her husband Minister of Investments. He became known as Mr 10%.
The welfare gain for the downtrodden Pakistani’s was that if you paid Benazir Bhutto’s husband is 10%, you got what you pay for. No further bribes of more junior and petty officials were required if you paid Benazir Bhutto’s husband his 10%. Many investments and business that otherwise would have been blocked but for countless bribes to a chain of corrupt politicians and bureaucrats at every turn went ahead.
When Benazir Bhutto became Prime Minister of Pakistan for the second time, not only was her husband again appointed Minister of Investments, he had better economic advisers. He became Mr 40%. Benazir Bhutto’s husband wanted to capture the economic gains of single-stop bribery and corruption for his family.
My experience with Japanese overseas development assistance confirms the same. They budget 10% for bribes. Their main interest is effective bribery. If they pay a bribe, the Japanese ODA agency expects to get what they pay and not have to pay a chain of more junior officials as well for the same thing.
Utopia, you are standing in it! 
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