Preview

Mr Jack Koops

Satisfactory Essays
Open Document
Open Document
327 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Mr Jack Koops
Economics Essay

Firms grow in size as the result of multiple strategies used, such as, horizontal integration, organic growth and many other ways. The reasons that give the firms the motivation to do this is to achieve economies of scales, business objectives, monopoly power and the minimum efficient scale in order to maximise their profit.

Firstly the strategy of horizontal integration refers to two firms that produce similar products, merging together to increase capacity, in order to increase the price elasticity of supply. In some cases this involves the owners of the two separate companies that merge together, becoming joint owners of the new company and splitting the profit evenly. In other scenarios a take-over occurs when one or a group of companies buy out the owners of another firm in a friendly, or hostile manner.

Another example of integration would be vertical integration, which involves two firms that produce the same product but at different stages of production merging together. Firms would do this to reduce costs, which would reduce prices, increasing output. There are two types of vertical integration, including backward vertical integration and forward vertical integration. Backward vertical integration is the joining with firms at previous stages of production, as forward vertical integration is joining with firms at a later stage of production.

Other methods of integration include lateral integration, which is when firms that make related but different products and conglomerate integration, when completely unrelated businesses join together.

Secondly another way firm’s increase in size would be organic growth. This refers to firms expanding in size internally by buying new factories, better machinery, employing more labour, or buying more storage space. This would be expensive for firms, however the motive is the opportunity cost as even though they may have a loss of production for a short period of time, the long-term

You May Also Find These Documents Helpful

  • Good Essays

    1. By the pool method the company would consume all competition to control supply interlocking directorate was when a company or group with control the board members of other companies to facilitate deals to benefit the baeking party horizontal integration is where a corporation controls all of one area of production to hold a monopoly on that stage of production vertical integration is when a company controls all stages of production of a product controlling every part and monopolizing prices…

    • 479 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Horizontal merger refers to two companies that were once competitors but came together to merge into one large organization. As one large operation, they are serving the same clientele under one entity.…

    • 971 Words
    • 3 Pages
    Good Essays
  • Good Essays

    A horizontal merger is a merger occurring between companies in the same industry. They are a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service. They are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry.…

    • 691 Words
    • 3 Pages
    Good Essays
  • Good Essays

    2. McDonalds uses a backwards-vertical integration because the company expands its operations into industries that produce inputs to the McDonalds products. Their second- tier suppliers like ink, paper and cardboard link to their first- tier suppliers that are packaging suppliers. Their second- tier suppliers that are farmers link to their first- tier suppliers that fruit vegetable, and cheese suppliers. Water and sugar are also second- trier suppliers that link to their first- trier supplier, which is Coke. This makes their business more profitable by buying their suppliers instead of buying from suppliers, this saves the money and time by not always having to buy expensive products from suppliers because they own what they need and they don’t have to compete with other businesses to get what they need. Since they have vertical integration they are hard to compete with because they provide…

    • 567 Words
    • 17 Pages
    Good Essays
  • Good Essays

    Comm 210

    • 3731 Words
    • 15 Pages

    Vertical Growth: By moving backwards to control materials and forward to control outlets ex: Pepsi buying out a bottle factory in order to have more control over the industry…

    • 3731 Words
    • 15 Pages
    Good Essays
  • Powerful Essays

    Unit 3: Albatross Anchor

    • 1472 Words
    • 6 Pages

    A company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods (Hindle, 2008). As a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized (Heakal, 2009). There are two types of economies of scale – external and internal. External are economies that benefit a firm because of the way in which its industry is organized. Internal are cost savings that accrue to a firm regardless of the industry in which it operates (Hindle, 2008). Economies of scale give companies access to a larger market by allowing them to operate with better geographical reach.…

    • 1472 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Week 3 Assignment

    • 497 Words
    • 2 Pages

    e How would expanding the business affect the economies of scale? When would you have constant returns to scale or diseconomies of scale? Describe your answer.…

    • 497 Words
    • 2 Pages
    Good Essays
  • Good Essays

    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -…

    • 939 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Marketing Case Study

    • 7879 Words
    • 32 Pages

    ________ is the acquiring or merging with firms in the same or complementary industries to gain economies of scale or scope.…

    • 7879 Words
    • 32 Pages
    Satisfactory Essays
  • Good Essays

    horizontal integration - that is, the merging of companies to create a more advanced product- to…

    • 1554 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Horizontal mergers are the combining of two or more companies in the same industry that are competitors. An example would be Sirius Satellite and XM radio. The benefit of this merger is a decrease in competition for all the companies involved. The disadvantages of this merger is that a horizontal merger is considered hostile due to a larger company “taking over” the smaller company and it feeling more like an acquisition than a merger (wiseGEEK, 2014). Another drawback is the companies not requiring to disclose or share all trade secrets resulting in jealousy and/or resentment.…

    • 593 Words
    • 2 Pages
    Good Essays
  • Good Essays

    An integration growth strategy whereabouts organization development .it sales as well as avail by the backward and forward, or horizontal integration in a period its industry. An organization or company be allowed to attain more of its suppliers to achieve more command or generate more benefit (backward integration). It authority to pick up some wholesalers or retailers, particularly assuming that they are highly cost-effective (forward integration). As a substitute conclusively, it has to acquire more challenger wound up accretions (horizontal integration). A strategy in which an industries boosts it is profit and sales backward, vertical and horizontal integration within it’s an organization. An organizations be allowed to decide growing…

    • 325 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Vertical integration is the “merger of companies at different stages of production and/or distribution in the same industry”. This can be much more beneficial to firms using pipelines rather than platforms because vertical integration can offer many supply chain advantages. For example, the ‘merger’ in different stages of production can lower overall costs due to getting rid of the ‘middle man’ and enhancing one’s responsibility of production under one roof allowing for managers to acquire more control. In most cases the advantages of vertical integration may deter companies from moving towards platform operations. However apple have very cleverly vertically integrated the production of apps for the apple IOS systems by only supplying one…

    • 210 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    Student

    • 1295 Words
    • 6 Pages

    Economies of scale are the advantages in average cost reductions that can be achieved through the growth of a plant, firm, or an entire industry. There are various different types of economies of scale, all of which can be grouped together into either internal or external. Internal economies occur within a plant or firm, and external economies are the consequence of the growth of the entire industry or region. Economies of scale are therefore the advantages of a growth. However, we must also consider the disadvantages of a growth (either internal or external), which are known as diseconomies of scale, in order to determine whether small firms derive benefit too.…

    • 1295 Words
    • 6 Pages
    Good Essays
  • Good Essays

    Most of the competitive companies are looking for expansion and growth in order to control a bigger share of the market and eventually make more profits for the share holders and the stock owners, to do that the companies should always:…

    • 1742 Words
    • 7 Pages
    Good Essays

Related Topics