Question

Business la chapter 48

1. Was this a horizontal merger, a vertical merger, or a conglomerate merger?

2. How is the market defined, in terms of both product or service and geographic area?

Answer 1

1. Horizontal Merger is a merger between companies which sell similar products on the same market. The 1980s bank mergers and the HP and Compaq mergers are examples of horizontal mergers. A horizontal merger shrinks market competition.

Vertical Merger is a combination of firms in the same industry, but at various stages of the process. In other words, there is a vertical merger between companies where one buys or sells something from or to another. Pepsi's merger with the restaurant chains that he provides with drinks, for example, is a vertical merger. Another example is e-Bay purchasing PayPal.

Conglomerate Merger is a merging of firms from various sectors. One example of this is the merger of Phillip Morris and Miller Brewing.

2. Definition of a particular market is a method for recognizing and defining the competitive boundaries between companies. It helps the Commission to set the context under which the principles of competition policy are implemented. The main aim of market classification is to define the competitive constraints faced by the undertakings concerned in a systematic way. The definition of the market makes it possible, inter alia, to calculate market shares which convey meaningful market power information with a view to assessing dominance

A particular market is identified according to factors of both product and geography. Generally speaking, a specific product market involves all those goods and/or services that are deemed interchangeable or replaceable (substitutability) due to the characteristics of the product, prices and planned use. Products and/or services which other producers may easily market without substantial switching costs or potential competitors at fair cost and therefore need to be taken into consideration within a limited time span.

The applicable regional market includes the area in which the undertakings concerned are engaged in the production and demand of goods or services, where the conditions of competition are relatively homogeneous and can be distinguished from neighboring regions, as the conditions of competition are important.