PureSource Pharma Inc.recently acquired BioChem Pharmaceuticals Inc.It now sells its own products along with the products originally sold by BioChem Pharmaceuticals.As a result,PureSource Pharma's sales force will also be marketing the acquired company's products.How will this horizontal integration most likely affect PureSource Pharma?

Question

Quizplus · Accepted Answer

This horizontal integration will help PureSource Pharma lower its costs through economies of scale. Research provides empirical evidence that firms use horizontal integration to lower costs through economies of scale, enhance their economic value creation, and in turn their performance. In industries that have high fixed costs, achieving economies of scale through large output is critical in lowering costs.