Economics / Unit 6: Business Organization and Labor
6.3 How Businesses Grow
Notes
- Firms grow by reinvesting profits or by merging with or buying other firms.
- Horizontal merger: two firms that make the same product join, such as two grocery chains.
- Vertical merger: firms at different stages of producing the same good join, such as a car maker buying a tire company or a steel mill.
- Conglomerate: a firm that owns businesses in many unrelated industries.
- A multinational corporation operates in many countries. Supporters say multinationals bring jobs, investment and technology; critics worry about their effects on local businesses, workers and the environment.
- Mergers can create economies of scale (lower average costs as output grows) but may also reduce competition, which is why large mergers are reviewed under antitrust law.
Practice
A movie studio buys a chain of movie theaters that show its films. This is a:
The firms are at different stages of making and delivering the same product.
Two rival pizza chains combine into one company. This is a:
The firms make the same product at the same stage.
A company that owns a soup brand, an insurance firm and a television network is best described as a:
It owns businesses in unrelated industries.
Ready for more? Take the Unit 6 test.