Mergers:

If firms in an oligopolistic industry cannot form a cartel or accept leadership, then they have another way out that will save them from any price war. That is to eliminate rivalry through merger. A Merger  is the consolidation of two or more independent firms into a single firm. There are three kinds of mergers viz.,

(1) Horizontal

(2) Vertical and

(3) Conglomerate.

A Horizontal merger combines two firms that produce the same product in the same geographic market. Since the two are competitors, a merger reduces the number of firms in the market. A Vertical merger combines two firms that previously had an actual or potential customer-supplier  relationship. That is, the product of one firm is used as an input of the other. The most important motive of vertical merger is the security in the input markets, output markets or both. When an acquiring firm merges with a firm that distributes it's products through it's outlets then it is a Downstream Integration, and this is done to obtain security in the output market. If the acquiring firm merges with an input-supplying firm, then it is called an Upstream Integration and designed to obtain security in the input markets.A conglomerate merger is neither horizontal nor vertical. These mergers have three motives: extending the market, expanding the product line and pure investment.