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Finance: What is The Difference Between a Horizontal and a Vertical Merger? 6 Views


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What is the difference between a Horizontal and a Vertical Merger? Horizontal mergers happen when two companies within the same industry decide to merge. They can benefit from this by decreasing competition and gaining more market share. Vertical mergers happen when two companies that are involved with the creation of a product, in different stages of its supply chain, decide to merge, creating less steps in the supply chain and ideally less costs and more efficiency.

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Transcript

00:00

Finance allah shmoop What is the difference between a horizontal

00:06

merger and a vertical merger Okay Mergers let's talk rock

00:12

As in a feller he was kind of the king

00:15

of mergers both vertical and horizontal Let's Talk about what

00:18

comprises each of these things All right in the energy

00:21

industry specifically oil Ah horizontal monopoly would exist if a

00:25

company owned all the oil wells in the world And

00:29

in fact for a short time opec owned well it

00:32

was very close to a monopoly at least an enormous

00:34

percentage of all the oil wells in the world such

00:37

that they were able to constrain supply create panic and

00:40

increase prices dramatically some five hundred percent and change the

00:45

world during the nineteen seventies when we had a very

00:47

weak president going against them and here's what inflation adjusted

00:51

prices for a barrel of oil looked like in that

00:53

period So that's a horizontal monopoly like where you own

00:58

all the sources of oil coming out of the ground

01:01

horizontal So what's a vertical monopoly Well in the process

01:05

of processing oil a lot has to happen for the

01:08

system to work right first step you have to pull

01:11

All the oil out of the ground right the oil

01:13

well but then you have to process it or synthesize

01:16

it from dinosaur coop into well something that's actually usable

01:20

in your lexus with the turbo engine Then because the

01:24

world demand is continuous you have to store the oil

01:27

and then distributed continuously forever and ever and ever and

01:31

eventually the retail customer buyer has to be ableto pull

01:34

up into a gas station think real estate here and

01:37

fill her up So if you owned a vertical monopoly

01:40

while you would own the discovery and mining of oil

01:44

the synthesis or processing of it or refining of it

01:48

as it's called in the industry you don't a storage

01:50

company a trucking and distribution company and while then a

01:54

bunch of gas stations well that would be a fully

01:56

integrated vertical monopoly So when horizontal and vertical mergers get

02:02

discussed they get framed under this format So let's say

02:05

we're coric coffee machines and we want a vertical merger

02:09

in our business because we're sick and tired of paying

02:11

coffee growers twelve cents a cup for something well that

02:15

cost them less than a penny So we at keurig

02:17

Decide to buy our own coffee plantation roasting and grinding

02:22

and processing company so that we can supply our own

02:25

coffee in our own little cups Well that would be

02:29

a vertical merger in the coffee business And it often

02:32

makes a lot of sense because all that profit that's

02:34

been given out to coffee vendors selling to the kindly

02:37

loving caffeinated folks at koi rig with then be capped

02:40

and retained by the kindly loving shareholders of keurig vertical

02:44

versus horizontal Good ways to emerge and good ways to

02:48

have a baby too But we're a g rated site 00:02:51.243 --> [endTime] so we're just just saying moving on Oh

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