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Will the merge between Boots and Alliance UniChem benefit both customers and the two businesses

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Introduction

Would the merger between Boots and Alliance UniChem be successful? If the company's were to merge it would be a horizontal integration because the two businesses are rivals and they are both at the same stage of the production chain. The advantages of horizontal integration are that the formed business might be able to achieve more internal economies of scale and hold a bigger market share. The advantages of achieving internal economies of scale are generally reducing the average cost on producing at a large scale. This could be done in many ways in internal economies of scale like, purchasing economies which is when a large company buy in bulk to get discount, small businesses might not be able to do this because they can not afford to buy in bulk or do not have enough space to store the stock. For example if boots and alliance UniChem merged they would have more money to buy in bulk and more buildings or shops to store the products in so they would be saving money. Another way is to have marketing economies this means that the cost of an advertising campaign would be less per unit sold, although the company, if made bigger might want to increase the advertising campaign to gain customers. ...read more.

Middle

This can happen both ways for example Boots supplier taking over Boots, this is called forward vertical integration the advantages of this are the firm will have greater access to customers making it easier to sell their products. Another merge is lateral/conglomerate this is when two businesses merge or get taken over that are in different markets for example Alliance UniChem buying Ryanair, the advantages of this are that the risk is reduced because then the business is not just relaying on a certain range of products to sell. A disadvantage is that one of the businesses might have no experience in the other market which leads to the business being run badly and may result in bankruptcy. There are also diseconomies of scale this means there are disadvantages to two big businesses (like Boots and Alliance UniChem) merging for example, if the business gets to big it could be very hard to manage and result in failure, also the decisions made take time to reach everybody in the company and could make people at the bottom of the hierarchy (pecking order) ...read more.

Conclusion

If the merge happened the business might not be able to grow anymore because of the risk of holding a monopoly share of the market, a solution to this is to expand the business abroad where they can grow with out having any worry of the OFT interfering, but a problem could be finding a country with a gap in the market for the merged company (Alliance Boots) to sell their range of products. Conclusion I think that the merge between Boots and Alliance UniChem resulting in "Alliance Boots" will be successful because both companies are in the same market which means it is only horizontal integration the result of this is that the managers of the company both have experience of this market. Other factors are the two businesses both already have customers who regularly buy products from both different stores. I think the main advantage for the businesses if they where to merge is that they could achieve economies of scale which would lower the average cost on producing at a large scale. A disadvantage of the businesses merging is that they might take for granted the decreased competition and raise the prices too high, so high that many customers might choose to shop elsewhere. ...read more.

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