What characterizes a vertical merger?

A vertical merger is characterized by the combination of companies operating at different stages of the supply chain. This type of merger allows a company to enhance its efficiency by controlling more of the production process or distribution network. For example, a manufacturer merging with a supplier or distributor can streamline operations, reduce costs, and potentially improve the quality of products and services offered. This integration can lead to a more cohesive operational strategy and can help the merged entity gain a competitive edge in the market.

The first option describes a horizontal merger, where two companies at the same level and in the same industry combine, which is not the case here. The second option focuses on eliminating competition, more relevant to monopolistic or anti-competitive practices rather than the nature of vertical mergers. The final option refers to diversification, which is not the primary goal or characteristic of a vertical merger as it specifically involves companies that are part of the same supply chain, rather than diversifying into entirely different markets or products.