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Level 8

Mergers and Economies of Scale


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Horizontal merger
The joining together of two firms at the same stage in the supply chain e.g. Morrisons taking over Safeway (both supermarkets)
Backwards vertical merger
A firm taking over a firm before it in the supply chain e.g. Tesco taking over a farmer that supplies it with milk
Forwards vertical merger
A firm taking over a firm ahead of it in the supply chain e.g a manufacturer taking over a retailer
Conglomerate merger
A firm taking over a firm in a completely unrelated business e.g. Virgin taking over Northern Rock a bank
Lateral merger
A firm taking over a firm in a different but related industry e.g. Google and Youtube
Economies of scale
Reductions in costs per unit that result from the firm increasing its output levels
Technical
Economics of scale that result form firm's taking advantage of their size to make more use of expensive machinery
Bulk-purchasing
An economy of scale resulting from the firm getting reduced costs from buying in bulk
Risk-bearing
An economy of scale resulting from being able to diversify into a number of different industries or countries meaning if one does badly the other might compensate
Financial
A firm getting better financial deal e.g. a lower interest rate on a loan from a bank because of its large size
Managerial
Economies of scale that arise from being able to employs specialist managers in different areas as the firm grows in size