Acquisition Accounting

Finance allah shmoop What is the difference between a horizontal

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

As in a feller he was kind of the king

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

comprises each of these things All right in the energy

industry specifically oil Ah horizontal monopoly would exist if a

company owned all the oil wells in the world And

in fact for a short time opec owned well it

was very close to a monopoly at least an enormous

percentage of all the oil wells in the world such

that they were able to constrain supply create panic and

increase prices dramatically some five hundred percent and change the

world during the nineteen seventies when we had a very

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

prices for a barrel of oil looked like in that

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

all the sources of oil coming out of the ground

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

of processing oil a lot has to happen for the

system to work right first step you have to pull

All the oil out of the ground right the oil

well but then you have to process it or synthesize

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

in your lexus with the turbo engine Then because the

world demand is continuous you have to store the oil

and then distributed continuously forever and ever and ever and

eventually the retail customer buyer has to be ableto pull

up into a gas station think real estate here and

fill her up So if you owned a vertical monopoly

while you would own the discovery and mining of oil

the synthesis or processing of it or refining of it

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

company a trucking and distribution company and while then a

bunch of gas stations well that would be a fully

integrated vertical monopoly So when horizontal and vertical mergers get

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

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

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

coffee growers twelve cents a cup for something well that

cost them less than a penny So we at keurig

Decide to buy our own coffee plantation roasting and grinding

and processing company so that we can supply our own

coffee in our own little cups Well that would be

a vertical merger in the coffee business And it often

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

been given out to coffee vendors selling to the kindly

loving caffeinated folks at koi rig with then be capped

and retained by the kindly loving shareholders of keurig vertical

versus horizontal Good ways to emerge and good ways to

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