Question

‘Bharat Cars Ltd.’ is the manufacturer of small cars in India and ‘Swadeshi Ltd.’ is the manufacturer and supplier of car parts. Both the companies decide to merge as such a merger would allow ‘Bharat Cars Ltd.’ to obtain better pricing on parts and have better control over the manufacturing process. ‘Swadeshi Ltd.’ would also be guaranteed a steady stream of business. The type of merger is:

• A. Market Extension Merger
• B. Vertical Merger
• C. Horizontal Merger
• D. Product Extension Merger

Hint:

Vertical Merger = Supplier + Manufacturer Think: Control over supply chain = Vertical Integration.

Answer 1

The Correct Option is B

A Vertical Merger occurs when two companies operating at different stages of the production process within the same industry combine. In this case:
Bharat Cars Ltd. manufactures small cars (finished product).
Swadeshi Ltd. manufactures and supplies car parts (component supplier). Since one company supplies parts and the other uses those parts to produce the final product, their merger is classified as a Vertical Merger. This helps the buyer control costs, improve supply chain coordination, and ensure steady inputs. Other options:
Market Extension Merger: Merging of companies in different markets.
Horizontal Merger: Between companies in the same stage of production (e.g., two car manufacturers).
Product Extension Merger: Between companies selling related products in the same market. Thus, the correct answer is (B) Vertical Merger.