What is the difference between a horizontal merger and a ver

What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of a newly merged firm?

Solution

Horizontal merger - When both the firm operated in the same business. Eg. HP and compaq\'s merger of computer business

Vertical merger - When a firm mergers with its supplier or distributor, i.e both the firms were in a difference business but along the same supply chain for a product/service. Eg. E-bay and paypal. Paypal provides payment gateway services while ebay is the front end.

A horizontal merger is more likely to increase the market power as it will reduce the no. of competitors in that particular industry. eg. when HP and compaq merged, the combined entity had a higher market power as their combined share was larger and there was 1 less competitor