Conglomerate in Business

ConglomerateConglomerate, in business, is a large corporation that controls or owns a number of companies that generally operate in unrelated markets. A corporation becomes a conglomerate through various types of mergers (combinations of two or more companies). Ordinarily, conglomerates tend to maintain the separate identity and management of their different companies.

There are three types of conglomerate mergers: (1) market extension mergers, (2) product extension mergers, and (3) pure conglomerate mergers. Market extension mergers combine companies that sell similar products or services in separate geographic markets, such as an international air carrier acquiring a regional airline. Product extension mergers bring together firms in related markets, such as an air carrier buying a bus company that serves several states. Pure conglomerate mergers combine firms in unrelated markets, such as an air carrier purchasing a fast-food chain.

A corporation might form a conglomerate in an attempt to offset temporary losses in some of its companies with the gains of others. Conglomerates also may obtain some savings by joining or coordinating production, marketing, financial, and management activities.

Critics claim some conglomerates hurt competition by obtaining a strong position in a market without adding to the number of firms in that market. Critics fear that the financial power of some conglomerates can help them dominate markets previously composed of many small, single-industry firms.

However, supporters of conglomerates have argued that the financial power of a conglomerate does not guarantee it can control any market in which the firm sells. Supporters have also argued that conglomerates maintain competition by restoring some weak companies that otherwise might face bankruptcy—that is, be unable to pay their debts.

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