Corporation Combinations

Pros and Cons of the Three Mergers

Horizontal

A business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service.

Pros:

  • More freedom.
  • More room for high levels of cooperation throughout.
  • Heavy emphasis on innovation.
  • More adaptable to change.

Cons:

  • The merged company may try to gain monopoly power in the market.
  • Can cause higher prices.
  • Leaders have high level of responsibility, little control over team member.

Vertical

A merger between two companies producing different goods or services for one specific finished product.

Pros:


  • Can allow a firm to operate more efficiently.
  • Can control all phases of production.
  • Usually don't lessen competition, which is good for the economy.

Cons:


  • People at the bottom feel less valued.
  • Decisions can take time.
  • Weak leadership can ruin the whole thing.

Conglomerate

A merger between firms that are involved in totally unrelated business activities.

Pros:


  • Does not result in decreased competition.
  • Allows for new products to be introduced to the market.
  • Ability to move into high profit area.
  • Escape from present business if market is too competitive.
  • Better access to capital markets.

Cons:

  • Will only be successful if high level of management.
  • Failure in one business will drag down the rest.
  • Lack of management experience will end with bad results.