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Unit 5.3


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Internal growth
Occurs when a business increases in size by selling more of its goods and services without taking over or merging with another business
External growth
Where a business grows in size due to a merger or takeover
New product development
This involves identifying new products or services that will lead to increased sales for a business
Innovation
The process of transforming an in invention into a product that consumers will buy
Research and Development (R&D)
The process of creating and designing new products and new methods of production
Merger
When two or more firms agree to join together, This is a voluntary agreement and results in the new businesses retaining the identity of both businesses.
Takeover
Where one business buys another business.
Conglomerate merger
Occurs when two businesses with no common interest join together
Forward vertical merger
Where a business merges/takes over another business in the same industry at a more advanced stage of production
Backward vertical merger
Where a business merges/takes over another business in the same industry at an earlier stage of production
Horizontal merger
Where a business merges/takes over another business in the same industry at the same stage of production
Economies of scale
The factors which cause the average cost of production to fall as output rises
Purchasing (commercial) economies
Occurs when a business can gain discounts on large orders from suppliers (bulk buying)
Technical economies
Reductions in average costs due to more advanced machinery
Market power
A measure of the influence of a business over consumers and suppliers
Diseconomies of scale
The factors which cause average costs of production to increase as output increases
Monopoly
A business which has a market share of 25% and can therefore influence the market. A pure monopoly exists when there is only one seller.
Patent
A legal protection for a business's new ideas.
Natural monopoly
Where one large business can supply the market at lower costs than if the market was supplied by many producers
Regulators
Independent bodies set up by the Government to monitor and regulate business activity
Competition Commission
The body which monitors markets and investigates merges and take overs to protect the public interest. It has the power to prevent mergers or take overs or can force the sale of assets.
Privatisation
The transfer of state owned businesses to the private sector
Self regulation
Where an industry body made up of representatives from businesses within the industry monitors the actions of members to ensure rules and guidelines are followed
Pressure group
An organisation which aims to influence the decisions of businesses, government and individuals