Google
Wednesday 
October 18, 2017 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
FACTOR MARKET EQUILIBRIUM: Equilibrium in the factor market, which for a perfectly competitive market is achieved at the factor price and factor quantity give by the intersection of the factor demand curve and the factor supply curve. For factor markets that are not perfectly competitive, such as those controlled by monopoly or monopsony, factor market equilibrium is achieved when the controlling firm maximizes profit. For monopoly, this is the factor quantity that equates marginal revenue and marginal cost. For monopsony, this is the factor quantity that equates marginal revenue product with marginal factor cost. But regardless of marginal structure, as an equilibrium it is maintained until shocked by an external force.

Visit the GLOSS*arama


VERTICAL MERGER:

The consolidation of two or more separately-owned businesses, that have an input-output relation, into a single firm. This is one of three types of mergers. The other two are horizontal merger--two competing firms in the same industry that sell the same products--and conglomerate merger--two firms in separate, unrelated industries.
A vertical merger occurs when two or more firms with an input-output relation in the production of a good, join together to form a single firm. An example of a vertical merger is that of a soft drink company merging with a sugar production company. The soft drink company uses the output of the sugar company as an input in the production of soft drinks. If the firms are in unrelated markets, it is a conglomerate merger. If the firms produce competing products, it is a horizontal merger.

Vertical mergers are commonly undertaken by firms as they seek to consolidate their production operations. Newspaper publishing companies, for example, have been known to purchase pulp and paper mills, and even timber companies, to ensure a steady supply of newsprint. Media giants like Disney and Viacom have merged with production companies to ensure a stream of programming as well as television stations to ensure a retail market for their products.

Vertical mergers are considered relatively harmless when in comes to inefficiencies that result from market control. Because a vertical merger is between two firms at various stages in the production a single good, competition is largely unaffected. Each market usually remains as competitive after the merger as before.

Suppose, for example, that Juice-Up, a soft drink firm, merges with Sweet Tooth Sugar Company, a major source of sugar used in the production of Juice-Up. The prime reason for this vertical merger is to ensure a stable input-output arrangement for both firms. Juice-Up benefits by owning the company that supplies a key input needed for soda production. And Sweet Tooth Sugar Company benefits by having a guaranteed buyer for its sugar production.

This vertical merger is relatively harmless because the resulting company is faced with the same competition after the merger as before. Juice-Up must still compete with OmniCola, King Caffeine, Frosty Grape, and others in the Shady Valley soft drink market.

However, while the likelihood of reduced competition is small, vertical mergers can create a few market control problems.

  • One potential problem is if a vertical merger lessens competition in either the input or the output market. Suppose, for example, that Juice-Up already owns another major sugar production firm (formerly know as the Major Sugar Firm) before merging with Sweet Tooth Sugar Company. The vertical merger between Juice-Up and Sweet Tooth Sugar Company can severely restrict competition in the sugar market.

  • Or perhaps Sweet Tooth Sugar Company is a major sugar supplier for all companies in the soft drink market. Once merged with Juice-Up, Sweet Tooth might decide to discontinue business with OmniCola, Super Soda, King Caffeine, Frosty Grape, and others. This could force Juice-Up competitors out of business and lessen competition in the soft drink market.

  • Alternatively, if the Sweet Tooth Sugar Company also already owns OmniCola, Super Soda, King Caffeine, and Frosty Grape, then a vertical merger between Sweet Tooth and Juice-Up can significantly lessen competition in the soft drink market.

<= VERTICAL EQUITYVERY LONG RUN, MICROECONOMICS =>


Recommended Citation:

VERTICAL MERGER, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: October 18, 2017].


Check Out These Related Terms...

     | merger | conglomerate merger | horizontal merger | collusion | explicit collusion | implicit collusion |


Or For A Little Background...

     | oligopoly | oligopoly, behavior | oligopoly, characteristics | industry | market structures | market control | firm | industry | competition among the few | short-run production analysis | profit maximization | production |


And For Further Study...

     | market share | concentration ratios | four-firm concentration ratio | eight-firm concentration ratio | Herfindahl index | barriers to entry | product differentiation | game theory | cartel | kinked-demand curve |


Related Websites (Will Open in New Window)...

     | U.S. Chamber of Commerce | Better Business Bureau |


Search Again?

Back to the WEB*pedia


APLS

BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time at the confiscated property police auction looking to buy either a handcrafted spice rack or a cell phone case. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
Your Complete Scope

This isn't me! What am I?

Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
"Executives who get there and stay suggest solutions when they present the problems. "

-- Malcolm Forbes, business executive

NSE
Nagoya Stock Exchange (Japan)
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2017 AmosWEB*LLC
Send comments or questions to: WebMaster