Horizontal Mergers

There are two types of mergers that exist, one is vertical merger and another is horizontal merger. In this paper we will discuss about horizontal merger. Firstly, we will define horizontal merger and then, present the guidelines for horizontal merger.

Merger usually occurs between two or more companies procuring similar kinds of goods or offering same types of services. Horizontal merger occurs when two companies rivaling in the same market set to merge. For example, the merger of Chrysler and Daimler-Benz.

Horizontal merger may or may not affect the market largely. On the contrary, it might not have any effect on the economy in some cases. If two small companies merge horizontally, which is a very common phenomenon, then the outcome of that merger is negligible. For example, if a small drug store merges horizontally with another small store, then it will hardly effect the drugstore market. On the other hand, a large merger in one sector may affect the other sectors adversely.

Big horizontal mergers sometimes act as a hindrance to competition. If one large company capturing 20% of the share market merges with another big company then the resulting company will have a large share holding. Therefore, this new company will gain an inequitable advantage in the market over its rivals. Horizontal Merger Guidelines: Horizontal merger guidelines are determined mainly to set the analytical framework which the authority, Department of Justice and the Federal Trade Commission, will use to examine whether the merger is good for market competition or not. But the authority may not disclose the litigation process that they have used for that examination. In fact, these guidelines are made to determine whether the horizontal merger could be challenged or not.
The horizontal merger guidelines are listed below:
All companies are under the scope of Federal Laws which can control horizontal merger.
The Federal Laws can stop certain things or actions at the time of horizontal mergers.
Federal Laws may stop the companies from creating monopoly to guard the consumers.
A merger will not be allowed to advance its market power until and unless it creates a properly measured as well as defined concentrated market.
The relevant product market will be defined by the authority only according to each and every product of the merging companies.

 

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Last Updated on : 29th July 2013