What term describes an agreement where two or more firms combine to form one company?

The correct answer is a merger, which refers to the process where two or more firms agree to combine their operations and assets to form a single entity. This is typically executed with the goal of enhancing competitiveness, achieving synergies, or expanding market reach. In a merger, the companies involved often create a new entity or one company absorbs the other, leading to a consolidation of resources, personnel, and market share.

Mergers can take various forms, such as horizontal mergers, where firms in the same industry combine, or vertical mergers, where firms at different stages of production join forces. The intent behind a merger is generally to foster growth, reduce competition, or improve operational efficiencies.

The concept of acquisition, though related, is distinct in that it usually involves one firm purchasing another outright, thus taking control of its operations rather than combining as equals. A joint venture represents a separate arrangement where two or more companies create a new entity for a specific purpose but maintain their independent operations outside of that instance. A franchise involves a business model where one party (the franchisor) grants another party (the franchisee) the rights to use its brand and business model, but does not constitute a combination of firms into one company.