Certified Financial Management Specialist Practice Exam

Which merger type aims to increase market share through the combination of two companies?

1. Product-extension merger

2. Horizontal merger

3. Market-extension merger

4. Conglomeration

The correct answer is: Horizontal merger

The correct choice involves a horizontal merger, which is specifically aimed at increasing market share by combining two companies that operate in the same industry and are at the same stage of production. When two competitors merge, they can achieve significant synergies, reduce competition, and consolidate their market position, leading to greater pricing power and potentially improved profitability. In the context of a horizontal merger, both entities typically offer similar products or services. By merging, they can eliminate redundancies, streamline operations, and benefit from economies of scale. This type of merger is particularly effective in industries where market share plays a vital role in competitiveness. Other types of mergers focus on different strategic goals. For instance, a product-extension merger combines companies with different, but related, products, aiming to broaden the product line offered. A market-extension merger combines businesses that sell the same products but in different markets, thereby expanding the geographical reach of their offerings. Conglomeration, on the other hand, involves merging companies in unrelated businesses, which does not directly aim for increased market share in a specific industry but rather seeks diversification of business operations.