What type of integration occurs when a firm combines with another firm in a previous stage of production?

Vertical integration occurs when a firm combines with another firm that operates at a previous stage of production. This type of integration allows a company to gain control over its supply chain, which can lead to cost savings, improved efficiency, and greater market power. For instance, if a manufacturer merges with a supplier of raw materials, it ensures a steady supply of inputs and reduces dependency on third parties, which can help stabilize prices and enhance bargaining power.

In contrast, horizontal integration refers to the merging of firms at the same stage of production, which does not involve the supply chain dynamics central to vertical integration. Conglomerate mergers involve companies that operate in completely different industries, and competitive mergers generally refer to collaborations between firms that are direct competitors but are not defined by the stages of production they operate in. Therefore, the definition and characteristics of vertical integration clearly align with the scenario presented in the question.