3A Flashcards
What is a Firm
An organisation that brings together factors of production in order to produce output.
What is the principal agent problem
Difficulties due to a ie owner conflict between objectives of the principals and those of the agents who take decisions on their behalf, eg managers.
What is organic growth
Where a firm grows internally by re-investing profits or borrowing from banks.
Advantages of organic growth
Decreased AC due to EOS, increased market share, EOS will benefit consumers with low prices.
Disadvantages of Organic growth
Slow process, Product may be saturated, diversification may be risky strategy.
What is a horizontal merger
A merger between two firms at the same stage of production in the same industry.
Advantages of horizontal merging
EoS, lower LRAC.
Increase market share-fewer firms so price maker.
Spreading risk to an extent, if enter new countries through integration
Disadvantages of Horizontal integration
Clash of cultures/coporate identity.
Costs of integration.
DoS- increased LRAC
negatives for consumers from market dominance.
What is vertical mergence
A merger between two firms in the same industry, but at different stages of the production process.
What is backward integration
A merger where a firm merges with a firm that is involved in an earlier part of the supply chain. eg car manufaccture buying a tyre manufactureer.
What is forward integration
A merger where a firm merges with a firm that is involved in a later part of the supply chain. eg brewer buying a pub
Advantages of vert merg
Greater control over the supply.
reliability of faster production.
EoS, lower LRAC
Disadvantages of vert merg
Costs/ difficulties of integration, IT systems
SRAC increase with redundancy payments.
less specialisation.
What is conglomerate mergence eg TATa
A merger between two or more firms operating in different markets.
Advantages of C mergence
Reduce risk by operating in different markets
knowledge benefit
EoS
