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This paper examines cooperative merger behavior when both upstream and downstream firms have market power. The results show that the quantity restrictions of a strong rent-seeking party upstream can substitute for downstream monopolization. This has an important implication for industrial organization in an international context. In general, high trade costs provide a natural barrier to import competition, allowing downstream firms to effectively act as a monopoly via domestic mergers. However, domestic monopolization can be suboptimal when inputs are priced above marginal cost by a concentrated input sector. The markups charged in both sectors over-restrict industry output. The paper shows that forming a downstream duopoly in each country via international mergers is the optimal way to mitigate this over-restriction. Thus, the results identify a new motive for international mergers: to alleviate the industry …