Question

Which of the following is true about a merger? a. It is an example of deregulation. c. It is a combination of two or more companies into a single firm. b. It violates the Sherman Anti-Trust Act of 1890. d. It always leads to economic growth.

Answer 1

The right answer is C: It is a combination of two or more companies into a single firm. The Sherman Anti-Trust Act of 1890 was aimed at banning monopolistic practices, deregulation is the process of removing state intervention in economic matters, and mergers can definitely go wrong and don't lead to economic growth.

The reasoning behind a merger is that two companies can do better if they combine their capabilities than if they act individually or separately, so they agree to establish a relationship. There are many different types of mergers, such as horizontal (the combination of two companies that sell the same product in the same market) and vertical (the combination of a company and a client), consolidation (when the two companies cease to exist and they create a brand new company) and purchase (when one company purchases another), among others.