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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
Full Transcript
- 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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