Originally Posted by aelle
Imagine a company A that wants to serve the public directly (provides you with apples, puts a roof over your head, keeps you safe at night, entertains you, whatever you want). How can you tell how well it does the job of giving individuals what they want? By the revenue they generate. If consumers are making the choice of buying what the company has to offer, it is because each consumer sees value in it. If no one buys it, it is because they don't see the value, and then the company dies. Agree so far?
Now this company A must outsource some part of their process because it's not their core skill. If their core skill is growing apples, surely when it comes to manufacturing the farming tools, fertilizer and bug repellent necessary to grow apples, or shipping apples to Seoul, or defending the interests of apple farmers in Washington, there is someone out there whose core skill better matches this task than the guy who mostly knows really well how to grow apples.
So company A buys company B's products or services. But the goal of company A still hasn't changed - it is to provide customers with value in the form of apples. The only way A can afford to spend more (purchasing what B has to offer is an extra spending) is if eventually the value of A's product increases as well and the customer buys more. If what A spends on B doesn't increase revenues, A will eventually go out of business. And since A is keeping B alive, B will go out of business too.
So B's goal is to allow A to provide better value to its customers, even though B is not in direct contact with the general market. Because what is good for the public is good for A is good for B.
And if B purchases yet another services from company C, then C's goal is to help B help A serve the public. Etc. It's not that a company provides value by the virtue of being alive - it's that the fact that it is alive proves that it is serving the public, somehow, eventually. It's Darwinian - if it weren't generating value it would go out of business.
I'll admit, aelle, this is a nice illustration of how and ostensibly
why companies buy other companies, but in my experience in businesses, I have found it more likely that the real motive of any of these companies is not serve anyone, but to make a profit
from selling, in this case, apples.
In any event, I wasn't really asking about buying companies, but rather trading stock in companies. Even if we compare buying stock in companies to buying companies outright, I still don't see the need
, as long as company A can continue to produce apples. If there is no company B to make the tools, there's always another company that does, else A wouldn't have been able to produce the apples in the first place (unless, of course, B is a monopoly, which would hardly signify its impending death).