A bakery chain with 20 outlets wants to grow. It has three options. Compare the effects on different groups.
Merge with a rival bakery chain
- The firm: Doubles in size quickly and gains bulk-buying discounts.
- Consumers: Fewer rival bakeries, so prices may rise and choice fall.
- Workers: Some jobs may be cut where outlets overlap.
A horizontal merger brings economies of scale but reduces competition.
Buy its flour supplier
- The firm: Secures flour supplies and controls quality.
- Other bakeries: May find it harder to buy flour from that mill.
- Management: Must learn to run a mill, which is a different business.
A backward vertical merger secures supplies but needs new skills.
Open new outlets itself
- The firm: Grows at a controlled pace and keeps its culture.
- Consumers: More choice as a new competitor enters areas.
- Timing: Growth is slower than buying another firm.
Internal growth is slower but keeps competition and avoids merger problems.