Question

What are horizontal, vertical, and conglomerate mergers?

Why have antitrust laws been passed? Are these laws performing their function?

Answer 1

What are horizontal, vertical, and conglomerate mergers?

When two companies share power under common ownership, we claim the two companies have joined together. There are three main forms of fusions. A merger refers to an arrangement where two companies come together to form a single entity. To put it another way, a merger is the merging of two entities into one legal entity.

Horizontal Merger is a fusion between companies that sell related goods in the same market. The 1980s bank mergers and the HP and Compaq mergers are examples of horizontal mergers. A horizontal merger shrinks market competition. A horizontal merger is a merger of businesses that compete directly with each other. Horizontal fusions are achieved to increase market strength (market share), further maximize economies of scale and leverage synergies of merger.

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

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

Why have antitrust laws been passed? Are these laws performing their function?

Antitrust laws have been in the US in the past in order to promote competition in the economy and control any monopolistic or market concentration activities by any firm in the market.

For eg. The Sherman Act and other acts have been passed from time to time to prohibit firms from engaging in any informal agreement to control prices in the market.

Yes, these laws are revised from time to time to suit market trends and have been doing a good job in controlling market power and anti competitive practices in the economy.