ECO200Y1 Lecture 6: mergers
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The merger of companies is when two different companies join their operations, resulting in a new company. They are horizontal, when verified between companies that develop similar activities within the value chain of the products they produce. They want to come together to gain scale and market share, strengthening the competitive position of the new business. In vertical mergers we have companies operating within the same sector, but at different stages in the production chain. As an example, we can mention a grain supplier teaming up with a food producer. Or a product distributor merging with the retailer. One of the main reasons for this type of merger is to lower costs and increase revenues. For example, an automobile manufacturer that buys a tire factory could reduce the cost of tires and sell those tires to other competitors. But this type of merger is not always successful.
