Cambridge International as and a level Economics Ebook

Figure 7.22 
The routes to integration
Horizontal integration: 
where a firm merges or acquires 
another in the same line of business.
KEY TERM
Diversification: 
where a firm grows through the 
production or sale of a wide range of diff erent products.
KEY TERM
176
Cambridge International A Level Economics

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SELF-ASSESSMENT TASK 
7.14
Pharmaceutical industry mergers beat recession
Ten years ago the global pharmaceutical industry 
experienced a spate of mergers. That was when Glaxo 
and Astra Zeneca were created and Pfizer became the 
world’s number one aft er taking over Warner-Lambert 
and, in 2003, Schering-Plough.
In early 2009 three new multi-billion dollar deals were 
announced. These were:
■ 
Roche buying Genentech ($47 billion)
■ 
Merck’s takeover of Schering-Plough ($41 billion)
■ 
Pfizer’s purchase of Wyeth ($68 billion).
Each of the newly merged giants has their 
specialisms. Roche is big in cancer-treating 
drugs, Merck in cholesterol-reducing drugs, while 
the largest of all, Pfizer, is big in vaccines, anti-
depressants, oral contraceptives and impotence 
aiding products.
The global industry is not short of cash. The reasons 
for the latest mergers stem mainly from fierce ongoing 
competition from generic drug manufacturers. These 
companies can make cheaper copies of drugs once 
patents have expired. Many such products are made in 
the emerging economies of southern Asia. The knock-
on effects are that big conglomerates are cutting 
back on new product development. Instead they are 
concentrating resources on new products such as the 
Tamiflu vaccine, which is difficult to copy. They are 
also buying new products from small businesses and 
then using their power to produce these for the global 
market.
Read the two features below and then answer the questions that follow.
Source:
Adapted from A. Townend, 
Daily Telegraph
, 16 March 2009.
Airline mergers – one too many?
Recession has hit the global airline business hard. Many 
of the world’s flag-flying national carriers have found it 
necessary to embark on a series of mergers, largely to cut 
costs and so reduce their eye-watering trading deficits. 
Significant mergers have been:
■
British Airways and Iberia
■
Luft hansa and Swiss
■
Delta and Northwest Airlines
■
United and Continental Airlines
■
Southwest Airlines and AirTran Airways
But is there a block on yet another US merger, that 
of American Airlines with US Airways? The Justice 
Department claims that the proposed merger ‘threatens 
substantial harm to consumers’.
A law professor at the University of Iowa has argued that 
the relevant question is not so much why the Justice 
Department has moved to block this latest merger but 
why it approved that between United and Continental. If 
this new merger goes ahead, the US would have just three 
main airlines.