Why might a company choose to engage in a vertical merger or acquisition?

• A. To avoid government regulation of horizontal mergers
• B. To increase the number of competitors in the market
• C. To diversify into unrelated industries
• D. To gain control over supply chains and reduce production costs

Answer: (D)

Verified step by step guidance

1. Understand the concept of a vertical merger: it occurs when a company merges with or acquires another company that operates at a different stage of the production process, such as a supplier or distributor.
2. Recognize the primary motivation behind vertical mergers: companies aim to gain greater control over their supply chains, which can lead to more efficient production and reduced costs.
3. Consider how vertical integration can reduce dependency on external suppliers or distributors, minimizing risks related to supply disruptions or price fluctuations.
4. Note that vertical mergers are not primarily intended to increase the number of competitors or diversify into unrelated industries; those goals are more aligned with horizontal mergers or conglomerate mergers.
5. Conclude that the main reason a company chooses a vertical merger is to improve operational efficiency and cost control by managing the supply chain internally.