Integration of firms - Theme 3

Horizontal integration

Merger of two firms at the same stage of production.

• E.g. TSB and Banco Sabadell in June 2015.
• E.g. Proposed merger between 02 and 3 in March 2015.

Advantages:

• Increased market share
• Economies of scale
• Reduced competiton
• Some opportunities for promotion
• Increased prestige of firm

Disadvantages:

• Risks - unknown costs
• Weakening or dilution of brand
• Loss of jobs for those duplicating.

Horizontal demerger:

Firms splitting at the same point of the production process

• E.g. BHP Biliton, a mining company sold off South 32 in May 2015 to concentrate on iron ore, coal, copper and South 32 concentrates on alumininum, silver and nickel.

Advantages:

• Reduced exposure to what might be a risky market.
• Removal of diseconomies of scale.
• Less risk and therefore increased job security.

Disadvantages:

• Sign of weakness
• Share price might fall
• Some loss of jobs as some parts of the business close down

Forward vertical integration:

Merger with a firm at the next stage of the production process

• E.g. Titanic Brewery bought 5 pubs in Staffordshire in June 2010.

Advantages:

• Greater access to customers
• Removal of competing suppliers
• Better…