Using Horizontal, Vertical, and Related Types of Acquisitions to Increase Market Power

Using Horizontal, Vertical, and Related Types of Acquisitions to Increase Market Power

Mergers and acquisitions are the main market growth strategies companies use to increase market share and gain a competitive advantage. Firms use horizontal acquisition to increase market power by taking over a company with a large customer base and popularity in the industry, thus benefiting from an increased customer base. Firms also use vertical acquisitions to increase their market power by improving business operations, thus increasing customer satisfaction, leading to increased sales, a large customer base, and customer loyalty. According to Frederiksen (2022), acquisitions may be classified into strategic and financial acquisitions. Companies use strategic acquisitions to fill vital gaps in their client list or service offerings, thus improving customer experience and satisfaction. For example, a company may acquire a company with good technology to improve operational efficiency and satisfy customers. A company entering a new market may also use strategic acquisitions to acquire customers and create customer loyalty by leveraging the acquired company’s brand image and awareness.

Firms also use financial acquisitions to increase market power by combining financial resources with another company to fund critical operations such as acquiring high-quality raw materials. McDonald’s is among the companies that have used multiple acquisitions to increase market power. McDonald’s is a greater competitor in the market because it acquires companies that offer resources that enable it to increase operational efficiency. For example, the company has acquired various tech companies to improve customer service, thus increasing customer satisfaction and loyalty. In 2019, the company acquired Apprente, a tech company, to allow simpler, faster, and more accurate order-taking at its Drive Thru’s (Taylor, 2019). The company has also been using tech companies to improve its kiosk services and mobile order-taking.

References

Frederiksen, L. (2022, April 11). Mergers and acquisitions are part of your growth strategy. Hinge Marketing. https://hingemarketing.com/blog/story/mergers-and-acquisitions-as-part-of-your-growth-strategy

Taylor, R. (2019). McDonald’s acquires another tech company. QSR magazine. https://www.qsrmagazine.com/technology/mcdonalds-acquires-another-tech-company.

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How do firms use horizontal, vertical, and related types of acquisitions to increase their market power?

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Provide an example of a company that has used multiple types of acquisitions to increase its market power and describe how the firm is now a greater competitor in the market as a result. Cite any sources used to support your answer.