How did Horizontal Integration Limit Competition? 

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How did horizontal integration limit competition? 

A) Fewer independently owned companies existed to compete.

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B) Companies agreed not to compete, making more money.

C) More small companies tried to supply raw materials to large companies.

D) Suppliers could not produce enough to serve horizontally integrated companies

ANSWER

D) Suppliers could not produce enough to serve horizontally integrated companies

The concept of horizontal intergration
The concept of horizontal intergration

What is horizontal integration?

It happens when multiple companies are operating in the same industry, it reduces competition. This means that a company doesn’t have to compete based on price and quality of goods but can concentrate on marketing, distribution, and other non-price factors.

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Why is horizontal integration important?

1. It allows businesses to get economies of scale.

2. It helps companies keep up with new developments rather than rely on others.

3. It enables companies to expand production and sales facilities without having to worry about the cost of investment or technology required

4. It enables companies to save on administration and research costs.

5. It helps build a strong and reputable brand for the business.

What are the advantages of horizontal integration?

· Increase in Production

This is mainly because the cost of operation will be reduced as every company producing the same types of products will use the same inputs to produce them. This would mean that one unit can be produced by a single person instead of several.

· Decrease in investment

A big chunk of money is saved as all these companies invest in the same things, i.e., plant, machinery used in production, and marketing strategies used to increase sales.

· Reduced technology costs

 The cost of new machinery, plant, and equipment (machinery) will be reduced as most of these companies already have their machinery.

· Increased use of technology

 By bringing together all the companies, there is a better use of technology as the companies can work in unison.

· New strategies and innovations

 A new trend or marketing style, new machinery or machinery used to increase production will be developed, and the cost of producing these factors will substantially decrease.

· Competitive advantage

The cost of producing a product or service will decrease significantly because most companies can produce them in a single location, thus reducing transportation costs.

why horizontal integration is important
why horizontal integration is important

Why is horizontal integration bad?

1. Increased concentration of power in the hands of few

2. Less variety in the market

3. Possible unhealthy competition with companies trying to outsell one another

4. Possible unethical methods like a price war, cut-throat competition, etc., which could be used to keep other companies at bay

5. It might lead to a monopoly which would be bad for consumers as the prices might increase due to a lack of competition and lesser incentive for the business to reduce consumer costs.

How did horizontal integration help businesses?

1. It helped the companies to get economies of scale as it enabled them to make larger quantities of a product in a single location. This would lower production costs as there would be no need for separate manufacturing facilities to be set up for each company.

2. When companies make large volumes of the same product, this reduces their investment costs as they use their machinery and plants.

3. It enables them to save on research and marketing costs, which are important for businesses.

4. Businesses can expand rapidly.

5. It helps build a strong and reputable brand for the business.

Several drawbacks exist when it comes to horizontal integration. Which of the below is not one of the drawbacks? 

A. Integration failure

B. Higher costs

C. The possibility of legal repercussions from the FTC

D. Reduced flexibility

{PROVIDE ANSWER AND EXPLANATION}

The answer to this question is B. costs decrease, as the companies have to pay for the same things like rent, electricity, and other expenses.

How does horizontal integration within an industry affect the surviving firms?

1. It concentrates markets and economies of scale (the former is the case since all large corporations are merged into one or a few) and enhances their ability to raise capital at low-interest rates due to the reduced risk in a concentrated market. This often leads to very low rates of return for the companies who have accepted this merger.

2. With such concentration, firms find it harder to compete with each other as they may have to fight for lower profit margins due to competition from this giant corporation(s).

3. As monopolies are formed, companies with less market share find it difficult to raise capital, as they lack the credentials of being a legitimate player in the market.

4. Less competition leads to higher production costs, thus affecting demand.

5. The gigantic corporation may have the capability to produce many products that smaller companies cannot make or have very little interest in doing so.

What would be the goal of a company that practiced horizontal integration?

1. To make their operation efficient by eliminating unnecessary costs and by increasing their capital base

2. To compete with other companies easily on a large production scale and make it harder for other companies to compete with them without affecting their profit margins.

 

A monopoly employing horizontal integration means what?

It is a company that produces everything it needs to survive on its own instead of buying all of its goods or services from outside suppliers. This form of monopolistic business organization is more difficult to operate than one using vertical integration because the company must keep operating costs low and have a high-quality product. This ensures economic modernization.

How does horizontal integration achieve an increase in profitability?

With horizontal integration, the big company can produce a better product that will be priced higher than the other business units of smaller firms. This gives the big corporation a monopoly on that particular product. 

To compete with them, smaller corporations have to produce a similar product at a lower price, but it is still more expensive than the products made by the giant corporation. The two cannot co-exist in this industry because they are too different, and what is more important, they compete directly with each other.

How does horizontal integration achieve an increase in profitability?

1. It has the power to raise the price of its products and act like a monopsony, where it can choose not to compete with others in the other production units.

2. It reduces competition through collusion, where all firms acting together or fairly close to each other would establish an oligopoly or monopoly on their market. Similarly, this is how cartels are formed, as it is easier for several firms from the same industry to collude than for a single firm.

3. It can lessen the threat of substitute products entering the market by buying out their suppliers and distributors.

4. It can also harness economies of scale and achieve economies of scope to reduce costs.

5. It can eliminate competition from other firms with similar products by buying them out, taking them over, or driving them into bankruptcy.

How did Rockefeller use horizontal integration to build his empire?

1. He used the excess capital from Standard Oil to invest in the oil fields, railways that transport the oil, and pipelines for conveying the oil. He also bought out other entrepreneurs who were trying to compete with him.

2. Through horizontal integration, Rockefeller was able to control about 90% of all sales of refined oil products in America at its peak in the 1880s, thus making it one of America’s first-ever multi-million dollar corporations.

3. Through horizontal integration, Rockefeller reduced competition from other oil majors such as the Pennsylvania Standard Oil Company and the New Jersey Standard Oil Company by buying them out.

4. Through horizontal integration, he was able to eliminate competition from railroad companies competing with him and others in transporting his oil and other products.

5. Through horizontal integration, Rockefeller bought out many of his rivals’ suppliers of oil products such as kerosene, gasoline, and lamp oils.

How did horizontal integration enable Rockefeller to monopolize the US oil industry?

Through horizontal integration, Rockefeller was able to control about 90% of all sales of refined oils in America at its peak in the 1880s, thus making it one of America’s first-ever multi-million dollar corporations. In addition, he also eliminated competition from other oil majors such as the Pennsylvania Standard Oil Company and the New Jersey Standard Oil Company by buying them out. He also stopped competition from railroad companies competing with him and others in transporting his oil and other products.

What is the disadvantage of a horizontal integration corporate strategy?

The main disadvantage of a horizontal strategy is that competitors can be too powerful and dominate the market.

A horizontal strategy is not the best option for most corporations because it relies on a large amount of capital to enter an industry, which is not always available for many different businesses. It also relies heavily on acquisitions and mergers, which can be very expensive.

In what ways are horizontal integration and vertical integration similar?

Vertical integration and horizontal integration are similar in that they both combine several different businesses into one company, but there are also significant differences. Vertical integration means one company owns all of the parts necessary to produce a product. 

What is the difference between horizontal and vertical integration?

1. Vertical integration means that a single company owns all of the parts necessary to produce a product.

2. Horizontal integration means different companies own different parts of a product, which allows each company to specialize in its industry and supply products to others in exchange for money or other resources (For example, oil companies provide oil to automobile firms).

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Categories: History