In case of a vertical merger, one corporation acquires either a customer or a supplier. Since horizontal mergers front a direct threat to competition, they have been controlled and regulated more aggressively by the federal government than vertical mergers. Corporations vertically merge for various reasons. A few of the most common reasons of vertical mergers are given below.
Reasons Of Vertical Merger In Business :
- To shrink uncertainty over the availability or quality of supplies or the demand for output
- To take advantage of available economies of integration
- To safeguard against monopolistic practices of either suppliers or buyers with which the Corporations should otherwise deal
- To decrease transactions costs such as sales taxes and marketing expenses.
By means of a vertical merger, the acquiring corporation may curtail its cost of production and distribution and create more productive utilization of its resources. Vertical integration by way of merger does not trim down the total number of economic entities operating at one level of the market, but it may alter patterns of industry behavior.
Vendors or suppliers possibly will lose a market for their goods, retail outlets may be in short of supplies, and competitors may discover that both supplies and retail outlets are in odd situations. Vertical mergers can also be anti-competitive since their entrenched market power may unwelcome new businesses to enter into the market.
Benefits Of Vertical Mergers :
Benefits Of Vertical Mergers Over Horizontal Merger Can Be Seen As Follows :
(a) Value chain management: Vertical Mergers have better value chain management over Horizontal Merger.
(b) Technological & other economies : Vertical Mergers have better value chain management over Horizontal Merger.
(c) Tax benefits : Vertical Mergers enjoy more ta benefits than Horizontal Merger.
(d) Lesser investment in working capital : Vertical Mergers need less work in capital than in Horizontal Merger.,
(e) Better control on the supply side : Vertical Mergers have better control on supply.