Company Growth

Question 1

Horizontal integration and what are the benefits?

Answer 1

A merger between two firms at the same stage of production. This is to achieve economies of scale or to increase market share.

Question 2

What is vertical integration.

Answer 2

A merger between firms at different stages of the productive process within an industry. Forward vertical occurs at the next stage of the production process. Backwards vertical is at the previous stage.

Question 3

What is conglomerate integration?

Answer 3

A merger between firms is entirely unrelated industries. Done to spread risk.

Question 4

Why do firms grow?

Answer 4

1) To increase market share to become a more dominant firm, increasing profits and granting price setting power 2) increased sales to improve brand recognition 3)increase economies of scale by lowering LRAC 4) gain power to prevent potential takeovers m

Question 5

Why do some firms remain small?

Answer 5

1) Niche market, a firm serves a niche market that will not support expansion, there is little scope for growth 2)Lack of resources, owner may lack expertise/funds 3) minimum efficient scale, in some cases firms have already exploited economies of scale and is productivity efficient. Any further increase in output would lead to diseconomies of scale.

Question 6

Why do de-mergers occur?

Answer 6

1) firms may grow to big and experience dis economies of scale. 2)firms may de-merge creating a smaller number of firms that can maximise their economies of scale and increase shareholder value and profits

Question 7

What are some of the barriers to entry a firm might face when entering an industry?

Answer 7

LEGAL BARRIERS- patents insure that ideas and processes are protected , licences restrict the number of firms in a market
MARKETING BARRIERS- firms have to spend vast amounts on marketing to establish recognition. Marketing costs are also sunk costs.
PRICING BARRIERS- predatory and limit pricing
TECHNICAL BARRIERS- firms in the industry may already benefit from economies of scale meaning they have lower costs and more competitive prices.

Question 8

What are some barriers to exit?

Answer 8

LOSS OF GOODWILL/REPUTATION
SUNK COSTS
REDUNDANCY COSTS

Question 9

What is first mover advantage?

Answer 9

The first into a market can establish themselves, build a consumer base and make it harder to enter the industry later on