<p>This paper examines the welfare effects of mergers between complement producers. We use a Hotelling model with vertical differentiation and a captive market (hinterland). Unlike standard Bertrand or vertical differentiation models, which predict unambiguous consumer benefits, our model reveals a richer set of welfare outcomes. Consumer surplus and total welfare may increase or decrease post-merger. Total welfare depends on allocative efficiency (how consumers are distributed between firms) and output efficiency (total output achieved). We show that mergers can increase consumer surplus while reducing total welfare. This depends on the interaction between intrinsic value effects, transportation cost effects, and the size of the hinterland. The type of differentiation – whether vertical or in transportation costs – is critical, as it influences the balance between the elimination of double marginalisation and raising rivals’ costs. These findings underline the need to account for market-specific factors when assessing the welfare implications of mergers between complement producers.</p>