Final answer:
Companies invest in other companies to diversify risk, form strategic alliances, and avoid competition, but not to decrease overall market stability. Diversification helps smooth out investment volatility, while alliances and investments can mitigate competitive pressures and create synergies.
Step-by-step explanation:
Common reasons why companies invest in other companies include: a. Diversification of portfolio, which spreads investments across various sectors to minimize risk; b. Strategic alliances, which are partnerships that can provide mutual benefits such as expanded market access or shared resources; and c. Avoiding competition, where investment might neutralize competitive threats or create a more favorable market environment. However, decreasing overall market stability is not a common goal for investment, as companies usually aim for a stable or advantageous market situation.
To elaborate, diversification of portfolio is a financial strategy that follows the proverb, "Don't put all your eggs in one basket." This approach helps in ironing out the ups and downs of investing, as it tends to neutralize the impact of any one company's performance on the investor's overall portfolio. Strategic alliances, including mergers, are formed for various reasons such as to become larger, more efficient, to acquire new product lines, or even reduce competition. By creating or joining associations, competing corporations might look for strength in numbers, tackle common industry issues, or benefit from governmental policies, ultimately aiming to enhance their market position.