Certified Financial Management Specialist Practice Exam

What type of merger involves two companies that are in direct competition?

1. Vertical merger

2. Congeneric merger

3. Horizontal merger

4. Market-extension merger

The correct answer is: Horizontal merger

A merger involving two companies that are in direct competition is categorized as a horizontal merger. This type of merger occurs when two businesses that operate in the same industry and are direct competitors combine their operations. The primary goal is typically to increase market share, reduce competition, and achieve economies of scale. In contrast, a vertical merger involves companies at different stages of the supply chain, such as a manufacturer merging with a supplier or distributor. A congeneric merger refers to companies that are in related industries but do not directly compete, often sharing some market or product similarities. A market-extension merger occurs between companies selling similar products in different markets, aiming to expand market reach. The classification of horizontal mergers is essential for understanding competitive dynamics in business markets and regulatory considerations, as such mergers are closely scrutinized for their potential to create monopolistic practices.