If the vertical integration between two firms creates greater managerial diseconomies than cost savings, the merger will increase the combined firm's overall costs.

Question

Quizplus · Accepted Answer

While vertical integration can lead to cost savings through the elimination of transaction costs and increased efficiencies, it can also create managerial diseconomies such as increased bureaucracy and coordination difficulties. If the costs associated with these diseconomies are greater than the cost savings from integration, the merger will increase overall costs for the combined firm.

If the Vertical Integration Between Two Firms Creates Greater Managerial