There are two major types of business merger: vertical merger and horizontal merger. We consider a market of a composite good that consists of two component goods. Consumers may purchase either the composite good or the component good alone. Firms may choose to either merge vertically or horizontally. In this paper, we examine the effect of product differentiation and bundling price on the incentives for merger. In addition, we also investigate how the product price and the firms’ profit are affected in either the vertical merger or horizontal merger.