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COMPANY TOWN: A small town closely associated with the production activity by a single firm. The firm is typically the only employer in the town and most of the goods and services sold throughout the town are provided by this firm. Company towns were quite prevalent in the late 1800s and early 1900s during the U.S. industrial revolution, often affiliated with a large mining, lumber, or manufacturing facility that was isolated from major urban areas. The company literally built a town around this facility to provide support services for their employees. The downside, however, was the lack of competition for both the employment of labor (monopsony) and the provision of consumer goods (monopoly). In some cases, the controlling firm exploited its market control creating circumstances not but different from slavery. Such company towns were a key motivation from the formation of labor unions.
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                           HORIZONTAL MERGER: The consolidation of two or more separately-owned businesses, operating in the same industry and producing competing products, into a single firm. This is one of three types of mergers. The other two are vertical merger--two firms in different stages of the production of one good--and conglomerate merger--two firms in separate, unrelated industries. A horizontal merger occurs when two or more firms in the same market, producing substitute products, join together to form a single firm. An example of a horizontal merger is that of two soft drink companies. The firms are competitors producing similar products. If the firms are in different markets, it is a conglomerate merger. If the firms have an input-output relation, it is a vertical merger. A number of industries have seen horizontal mergers among competing firms in recent years. This has been common in the banking industry, practiced by such firms as Bank of America and MBNA. In years past, General Motors expanded through the horizontal merger of individual car companies (Chevrolet, Buick, Cadillac, Oldsmobile, and Pontiac). The petroleum industry has recently produced firms such as Exxon Mobile, ChevronTexaco, and ConocoPhillips formed by horizontal mergers. Horizontal mergers are among those most closely watched by the Department of Justice as it seeks to enforce antitrust laws and promote efficient competition. Because market efficiency depends on the market control of each firm, which depends on the number of competitors, concern arises if that number declines. Fewer competitors mean each firm has more market control and the overall industry tends to be less efficient. Whenever two competitors undertake a horizontal merger, competition is likely to decline. The hypothetical Shady Valley soft drink market offers one example of a horizontal merger. The two largest competitors in this market are OmniCola and Juice-Up. A horizontal merger results if these two companies merge to form a single company (call it OmniUp). Such a merger concerns antitrust enforcers because OmniCola, with 23 percent of the market, and Juice-Up, with 17.5 percent of the market, gives the new OmniUp firm over 40 percent of the market. The next largest competitor is Super Soda, with a relatively small 11.25 percent of the market. This merger raises the four-firm concentration ratio from 61.25 to 67.50 and the Herfindahl Index from 1177 to 1982. Alternatively, a horizontal merger between the third and fourth largest firms in the Shady Valley soft drink market might actually increase competition. A merger between Super Soda, with 11.25 percent of the market, and King Caffeine, with 9.5 percent of the market creates a larger firm (call it Super Caffeine) with over 20 percent of the market. Even though the four-firm concentration ratio rises from 61.25 to 67.50 and the Herfindahl index increases from 1177 to 1390, this new firm is then able to offer greater competition for the two largest firms, OmniCola and Juice-Up. Three firms of nearly equal size might be preferred by the Department of Justice to two firms that are significantly larger than the rest.
Recommended Citation:HORIZONTAL MERGER, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: April 27, 2025].
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Today, you are likely to spend a great deal of time searching for rummage sales looking to buy either clothing for your kitty cats or a set of luggage without wheels. Be on the lookout for vindictive digital clocks with revenge on their minds.
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During the American Revolution, the price of corn rose 10,000 percent, the price of wheat 14,000 percent, the price of flour 15,000 percent, and the price of beef 33,000 percent.
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"We succeed in enterprises (that) demand the positive qualities we possess, but we excel in those (that) can also make use of our defects." -- Alexis de Tocqueville, Statesman
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