Vertical merger occurs when
A) two firms merge where one had sold its output to the other as an input.
B) the merger moves the combined firm onto the horizontal portion of its long-run average cost curve.
C) two firms merge where each is about the same size.
D) two firms producing a similar product merge.

Question

Quizplus · Accepted Answer

Vertical merger occurs when two firms merge where one had sold its output to the other as an input. In other words, one of the firms is a supplier of the other. The purpose of a vertical merger is to increase efficiency by reducing transaction costs and improving coordination between the two firms. For example, a car manufacturer merging with a tire manufacturer would be a vertical merger since the tire manufacturer supplies inputs to the car manufacturer.

Vertical Merger Occurs When