Syllabus: Cambridge - IGCSE Economics
Module: 3.5 Firms
Lesson: 3.5.4 Mergers

Introduction

Why do companies join forces — and what does it mean for consumers, workers and competitors? In Cambridge IGCSE Economics (0455), Topic 3.5.4 explores mergers as a key mechanism in the growth of firms. This section sits within the “Firms” topic and offers valuable crossovers with enterprise education, competition policy and current business affairs. For educators, it’s a rich opportunity to deepen learners’ economic reasoning through real-world examples and decision-making scenarios.

Key Concepts

According to the Cambridge IGCSE Economics syllabus (0455), learners should be able to:

• Define a merger as the joining of two or more firms to form one entity.

• Distinguish between different types of mergers:

  • Horizontal merger – between firms at the same stage of production.

  • Vertical merger – between firms at different production stages (backward or forward integration).

  • Conglomerate merger – between firms in unrelated business activities.

• Explain the motives behind mergers, such as:

  • Economies of scale

  • Increased market share

  • Diversification

  • Access to new markets or technology

• Evaluate the potential advantages and disadvantages of mergers for different stakeholders: consumers, employees, firms, and government.

These concepts link with earlier knowledge from production and economies of scale, as well as later topics on market structure and regulation.

Real-World Relevance

Mergers frequently make headline news, offering tangible examples for classroom discussion. Recent case studies include:

• Microsoft’s acquisition of Activision Blizzard (2022–2023) – a horizontal merger in the tech sector, raising regulatory scrutiny over competition in gaming.

• Amazon’s merger with MGM Studios (2022) – a vertical integration strategy allowing Amazon to expand its Prime Video content offering.

• Google’s parent company Alphabet acquiring Fitbit (2021) – illustrating the conglomerate approach and concerns around data ownership.

These examples allow students to apply theory to fast-moving industries and consider the social, technological and ethical implications of corporate consolidation.

How It’s Assessed

In the IGCSE Economics exam, mergers may be assessed in both Paper 1 (Multiple Choice) and Paper 2 (Structured Questions). Question styles may include:

• Define questions to test key terminology (e.g., “What is a horizontal merger?”).

• Identify and explain style questions on types or motives for mergers.

• Analyse questions exploring impact on stakeholders.

• Evaluate questions requiring balanced arguments and a justified conclusion (often 6–8 mark questions).

Command words such as explain, analyse, and discuss should be explicitly taught and practised. Encourage students to support answers with relevant examples — marks are often gained here for demonstrating application, not just knowledge recall.

Enterprise Skills Integration

Teaching mergers offers natural links to enterprise and employability skills, such as:

• Critical thinking – weighing benefits and risks of merging firms.

• Decision-making – assessing whether a merger makes economic sense.

• Communication – justifying arguments clearly using stakeholder perspectives.

• Teamwork – using group tasks to simulate merger negotiations or stakeholder debates.

• Numeracy – interpreting data on market share or cost savings post-merger.

Use role-play or case-based decision tasks to model real business dynamics and bring the topic to life.

Careers Links

This topic aligns with Gatsby Benchmark 4 (Careers in the Curriculum) and can link to various pathways, including:

• Corporate law – especially in merger regulation and competition policy.

• Finance and investment banking – advising firms on acquisitions and valuations.

• Business consultancy – supporting firms in strategy and integration.

• Marketing and brand management – handling repositioning post-merger.

• Public policy and economics – analysing wider economic implications of mergers.

Introduce these links through guest speakers, alumni videos or short research tasks on roles involved in merger deals.

Teaching Notes

• Start with the familiar: use brand names students recognise (e.g., Disney and Marvel, Google and YouTube) to introduce mergers.

• Use visuals: flowcharts and diagrams can clarify vertical vs horizontal integration.

• Watch for confusion: students often mix up the types of mergers or think all mergers are beneficial — challenge these assumptions.

• Stretch activities: ask students to evaluate a real or fictional merger’s impact on consumers using evidence.

• Support assessment: use past-paper questions from Cambridge and break down mark schemes to model high-level answers.

• Embed literacy: reinforce command words and provide sentence starters for evaluation.

Well-pitched, this topic boosts not only economic understanding but also real-world awareness and debate skills.