Merger (notion)

 

Institution Definition

An amalgamation or joining of two or more firms into an existing firm or to form a new firm. A merger is a method by which firms can increase their size and expand into existing or new economic activities and markets. A variety of motives may exist for mergers: to increase economic efficiency, to acquire market power, to diversify, to expand into different geographic markets, to pursue financial and R&D synergies, etc. Mergers are classified into three types:

  • Horizontal Merger: Merger between firms that produce and sell the same products, i.e., between competing firms. Horizontal mergers, if significant in size, can reduce competition in a market and are often reviewed by competition authorities. Horizontal mergers can be viewed as horizontal integration of firms in a market or across markets.
  • Vertical Merger: Merger between firms operating at different stages of production, e.g., from raw materials to finished products to distribution. An example would be a steel manufacturer merging with an iron ore producer. Vertical mergers usually increase economic efficiency, although they may sometimes have an anticompetitive effect.
  • Conglomerate Merger: Merger between firms in unrelated business, e.g., between an automobile manufacturer and a food processing firm. © OECD

See also Market share

 
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