Social Sciences and History / Unit 2 SSH 0109 worked example, 60 to 90 seconds
Classifying a Business Combination
The idea
The exam names a firm's growth strategy and asks which form it is. The anchor supplies four. Vertical integration acquires the stages of one product's life, from raw material to delivery. Horizontal integration merges with or buys similar firms doing the same stage. A trust places the stock of several firms with trustees who run them together for the investors. A holding company owns a majority of the stock in several companies and controls them from a central entity.
In practice
Four cases in the course's own words. A steelmaker buys iron mines, coke ovens, a railroad and a fleet of ore ships: vertical, every stage of steel. A refiner buys or bankrupts rival refineries until it holds most of the country's refining: horizontal, one stage repeated. Rival railroads hand their shares to a board that sets one set of rates for all of them: a trust. A company created only to hold controlling shares in a dozen operating firms: a holding company. To tell vertical from horizontal, ask whether the firms acquired do the same work or different work along one chain.
Where people slip
The trap is treating trust and monopoly as synonyms. A trust is a legal device; a monopoly is a market condition. A trust can produce a monopoly, and a holding company can do the same work a trust did after trusts drew legal attack.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Unlocks
- Nothing yet depends on this.
Something wrong in this lesson? Flag it