Annaliza D. de Castro
Types of Business Combination :
1. Vertical Business Combination: When various departments large industrial units combine together under single management is called vertical combination. Under this combination from purchasing of raw material to selling of product all the stages are linked up by the units.For examp0le, all the business units engaged in publishing books can make vertical combination as under :
Objectives or Advantages of Vertical Business Combination :- 1. To minimize the cost per unit.
2. To eliminate competition.
3. To hire the services of experts.
4. To supply the goods at lowest price.
5. To avoid over production.
6. To use improved methods of production.
7. To achieve the benefits of large scale.
8. To find proper market for their product.
9. To supervise the management.
10. To reduce the middleman commission.
11. To earn maximum profit.Other Advantages:
* Some economies of scale such as risk bearing economies, financial economies. Lower costs could lead to lower prices for consumers. * Firm not subject to losing control of supply. e.g. they can’t be held to ransom by suppliers demanding higher price at critical time. * Maybe some overlap of technology and expertise. e.g. A bookshop may know what kind of books sell well so they can develop the right kind of paper and attractive design. * Arguably the splitting up of the rail network created more confusion and less incentive to look after the track. It would make more sense for train operating companies to be responsible for the track as they would have greater interest in maintaining it satisfactorily.
Vertical mergers will have less economies of scale because most of the production is at different stages of production. There is still scope for monopoly power. Also a vertical merger can lead to monoposony power. e.g. tied pubs can charge higher price to consumers and they have less choice of beer....
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