1. 2. Growth of firms
1. Complete the table using the words below
1.1 Why do firms grow?
Firms will grow to be able to benefit from lower long
run average costs
Firms will grow to satisfy the personal ego of the
managers and owners
Firms will grow to avoid being vulnerable to takeovers
by hostile predators
Firms will grow to spread the risk of being involved in
only one market
Firms will grow to maximise their returns
Firms will grow to maximise their customer base
Firms will grow to increase levels of productive/technical
and dynamic …….
Profit Maximisation, Efficiency, Market Share, Diversification, Managerial Satisfaction, Economies of
Scale, Defensive motives.
2. How do firms grow?
Firms can grow through mergers or takeovers or by expanding their market share. Examples of recent takeovers
include
1.
2.
3.
British Airways & Iberia
Kraft Foods & Cadbury
United Airlines & Continental
4. Disney & Marvel Comics
5. Orange Telecommunications & T Mobile
3. Types of mergers –
3.1 Complete the definitions
a.
_______________________________ is a merger between two firms at the same stage of production –
for example a supermarket buying another supermarket.
b.
_______________________________ is a merger between two firms at different stages of production,
for example a supermarket buying a food manufacturer. This can be __________________________
where the firm buys another at the next stage of production or it can be _________________________
where the firm buys another at the previous stage of production.
c.
_______________________________ is a merger between two firms in unrelated businesses. For
example a supermarket buys a bank.
3.2 Identify which type of merger the following examples fit
a.
Lloyds-TSB (bank) buys HBOS (bank) _____________________________
b.
Granada (TV producer) buys Compass (Catering supplier) ____________________________
c.
Centrica (Energy supplier) buys British Energy (Energy supplier) __________________________
d.
BP (oil producer) buys Veba OI AG (a petrol retailer) ___________________________
e.
National Grid (Electricity distributer) merges with Lattice Group (Gas distributer) __________________
f.
Carlton Communications (TV Broadcaster) merges with Granada (TV Broadcaster) _________________
g.
Morrison’s (Supermarket) buys Safeway (Supermarket) ___________________________
h.
Whitbread (Hospitality Company) buys Premier Lodge (Hotels) ___________________________
i.
Delta Airlines merges with Northwest Airlines _____________________________________
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2. 2. ANSWERS: Growth of firms
1. Complete the table using the words below
1.1 Why do firms grow?
Economies of Scale
Firms will grow to be able to benefit from lower long
run average costs
Managerial Satisfaction
Firms will grow to satisfy the personal ego of the
managers and owners
Defensive Motives
Firms will grow to avoid being vulnerable to takeovers
by hostile predators
Diversification
Firms will grow to spread the risk of being involved in
only one market
Profit maximisation
Firms will grow to maximise their returns
Market Share
Firms will grow to maximise their customer base
Efficiency
Firms will grow to increase levels of productive/technical
and dynamic …….
2. How do firms grow?
Firms can grow through mergers or takeovers or by expanding their market share. Examples of recent takeovers
include
1. British Airways & Iberia
4. Disney & Marvel Comics
2. Kraft Foods & Cadbury
5. Orange Telecommunications & T Mobile
3. United Airlines & Continental
3. Types of mergers –
3.1 Complete the definitions
a.
Horizontal Integration is a merger between two firms at the same stage of production – for example a
supermarket buying another supermarket.
b.
Vertical Integration is a merger between two firms at different stages of production, for example a
supermarket buying a food manufacturer. This can be forward vertical integration where the firm buys
another at the next stage of production or it can be backward vertical integration where the firm buys
another at the previous stage of production.
c.
Conglomerate integration is a merger between two firms in unrelated businesses. For example a
supermarket buys a bank.
3.3 Identify which type of merger the following examples fit
a.
Lloyds-TSB (bank) buys HBOS (bank) Horizontal
b.
Granada (TV producer) buys Compass (Catering supplier) Horizontal
c.
Centrica (Energy supplier) buys British Energy (Energy supplier) Horizontal
d.
BP (oil producer) buys Veba OI AG (a petrol retailer) Forward Vertical
e.
National Grid (Electricity distributer) merges with Lattice Group (Gas distributer) Conglomerate –
spreading risk by diversifying
f.
Carlton Communications (TV Broadcaster) merges with Granada (TV Broadcaster) Horizontal
g.
Morrison’s (Supermarket) buys Safeway (Supermarket) Horizontal
h.
Whitbread (Hospitality Company) buys Premier Lodge (Hotels) Conglomerate
i.
Delta Airlines merges with Northwest Airlines Horizontal
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