Question

Economists believe that many or even most mergers (or acquisitions) between two purely vertically related firms will not have negative impacts on consumers and may benefit consumers. Other than economies of scale or scope that is also present with horizontal mergers, what might explain this often-favorable view of vertical mergers?

Answer 1

Horizontal & Vertical Mergers
Horizontal mergers constitute the firms which are functioning in the same industry. They both have similar commodities and process of production. Horizontal mergers are common in industries working under oligopoly. Since they compete each other, they try to increase their share in market through adopting various strategies. They try to increase market share and expand their organization by merging which helps them reduces cost of production and leading further expansion in production.
Vertical merger comes under the idea of two companies engaging in production for different goods and services which result in one specific final product. Vertical merger occurs when firms produces differently at an industries chain of supply, merge operations. Merging may increases the ability of firms to produce as one. These firms may not compete each other. They do not produce similar products but produces different products relating or necessary for a particular industry. Along with improving the economies of scale, vertical merging have advantages of attaining more control over the supply chain process, acquiring better position in the market, etc. The increased control over the supply chain may increases the confidence of the merged firms and benefitting from the improvement that they made in the combine share of market. So, vertical merging not only has the advantage of economies of scale but also of better market power and control over the supply of chain which gives addition benefit for the firms.