Horizontal Integration and Vertical Integration,

Problems with Vertical Integration:

(1) Increasing cost structure (2) Technological change (3) Demand unpredictability

Benefits of Horizontal Integration

(1) Lowers the cost structure (2) Increases product differentiation (3) Replicates the business model (4) Reduces rivalry within the industry (5) Increases bargaining power over suppliers and buyers

Merger

- An agreement between two companies to pool their resources and operations and join together to better compete in a business or industry

Problems with Horizontal Integration

- Implementing this strategy is not an easy task - Problems could be associated with merging different company cultures, high management turnover in the acquired company when the acquisition is a hostile one, and a tendency of managers to overestimate the potential benefits from M&A and underestimate the problems involved - Conflict with Trade laws (anti-trust laws)

Horizontal integration

- The process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations

Vertical Integration

- When a company expands its operations either backward into an industry that produces inputs for the company's products (backward vertical integration) or forward into an industry that uses, distributes, or sells the company's products

Acquisition

- When a company uses its capital resources to purchase another company

How does a firm grow

internal and external growth

Why does the firm grow

to increase, sales, profits and market share

Amazon buying a supplier is

vertical integration