Vertical Consolidation

Vertical
consolidation and horizontal consolidation are ways for businesses to reduce competition. With
horizontal consolidation, competing companies merge into one big company. If five oil companies
are competing against each other, and they merge into one big company, this reduces or
eliminates competition. These competing businesses may agree to merge, or they may be bought out
by one of the competing companies. This allows the bigger company to control supply and possibly
raise prices.

Vertical consolidation is when one company controls every
aspect of a specific industry. For example, a company that specialized in the meat industry
would control the cattle ranches, the slaughtering houses, the packaging plants, and the
vehicles that deliver the meat to the stores. In this situation, one company has total control
over every aspect of the industry. This allows that company to control the supply of the
products, which will affect the prices that can be charged.

Both horizontal
consolidation and vertical consolidation are business techniques that reduce competition and
benefit the business owners.