What is a Vertical Acquisition?

Vertical acquisition refers to the acquisition between companies that are closely related in the production process or operation. In essence, vertical acquisitions are acquisitions between companies that are producing the same product and at different stages of production. The two parties to the acquisition are often raw material suppliers or finished product buyers. Therefore, they are more familiar with each other's production conditions and are conducive to mutual integration after acquisition .

Vertical acquisition

Vertical acquisition refers to the acquisition between companies that are closely related in the production process or operation. In essence, vertical acquisitions are acquisitions between companies that are producing the same product and at different stages of production. The two parties to the acquisition are often raw material suppliers or finished product buyers. Therefore, they are more familiar with each other's production conditions and are conducive to mutual integration after acquisition .

Chinese name

Vertical acquisition

Buying parties

Raw material supplier or finished product buyer

Good

Stabilize supply side sales channels, etc.

Harm

Vertical acquisitions can also lead to price discrimination

Advantage defect

The advantage of vertical acquisition is that on the one hand, the supplier can stabilize the sales channel, and on the other hand, the buyer can stabilize the source of materials, semi-finished products or products, thereby saving transaction costs and improving the production efficiency of the enterprise. In the acquisition of domestic enterprises by foreign capital, foreign enterprises stabilize their sales channels, enabling domestic enterprises to stabilize the source of raw materials or products, thereby saving transaction costs and improving the production efficiency of domestic enterprises. However, it is also harmful for foreign companies to vertically acquire domestic companies to cover a large market and maintain an effective and competitive market structure. which performed:

First, foreign vertical acquisitions will reduce the opportunities for other domestic companies that have not participated in the acquisition to participate in the transaction, preventing them from entering the partially closed vertical market. In this way, regardless of whether the acquired company exerts a restrictive competitive influence on the companies that participate in the transaction, such acquisitions may put these companies in a disadvantageous competitive position until a monopoly is formed.

Second, vertical foreign acquisitions can raise the price that other companies want to enter the domestic market. For example, in a market where a company wants to enter the production market, if a domestic company that produces a picture tube is acquired by a foreign capital, it is impossible for other manufacturers in the color TV production market to obtain such a picture tube. Some competitors may be expelled from the market, and potentially competing companies encounter great difficulties when entering the market, even if they enter, they will pay a higher price.

Third, after foreign companies acquire domestic companies, the purchase prices of raw materials or product sales between them are absolutely different from the transaction prices between those companies that have not been acquired. In this way, vertical acquisitions can also lead to price discrimination.