Essay On Pros And Cons Of Mergers

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Recommended: Importance of regulatory affairs

Should government prevent major mergers of corporations that could potential control a large percentage of market share within its industry?
A merger is a combination of two corporations, where one corporation is completely absorbed by another corporation. The smaller corporation loses its identity and becomes part of the bigger corporations which retains its identity. Mergers are regulated by federal and state laws, and the regulation is based on the concern that mergers inevitably eliminates competition between the merging firms. The fear that mergers reduces competition has meant that the government scrutinizes proposed mergers. The following paragraphs explain briefly the merits and demerits of merging corporations.
Merger Leads …show more content…

Also, if there are less firms in the market it may be easier to conspire and increase prices. This will lead to allocative inefficiency because prices will be greater than marginal cost. Other possible disadvantages include firms that make more supernormal profits, may be able to use this for predatory pricing and force new firms or smaller firms out of business. Also, if firms get too big they may suffer from diseconomies of scale leading to more inefficiency. The new firm may be able to use its monopoly power to pay suppliers less and therefore make more profits.
A merger may lead to job losses. If the job losses lead to greater efficiency then the economy will benefit in the long run, and if firms get to big, they may suffer from diseconomies of scale. Diseconomies of scale come about when a business or organization becomes so big, or so inefficient, that the cost-per-unit of its products and services starts to rise. A business can only grow so much before the benefits of growth begin to create additional costs and resources, because any additional output becomes more expensive. Complexities take over and bureaucracies dominate, leading to more …show more content…

Competition and Market Power: A Primer, July 2005, www.econoclass.com/imperfectcompetition.html.

Renaud, Rob. “Why do companies merge with or acquire other companies?” Investopedia, 30 May 2017, www.investopedia.com/ask/answer/60/mareasons.asp#ixxzz4yoPeJEnB.

Schumpter. “Not the American way.” The Economist, The Economist Newspaper, 14 Aug. 2013, www.economist.com/blogs/schumpeter/2013/08/government-opposes-big-airline-merger.

Staff, Investopedia. “Merger.” Investopedia, 18 Dec. 2014, www.investopedia.com/terms/m/merger.asp#ixzz4yZIWUfC0.

Tejvan. “Essay: When, if ever should a govt intervene to prevent a merher or takeover? Justify your reasoning. (30).” Economics Help, 2016, www.economicshelp.org/microessays/essays/when-prevent-merger/.

Microeconomics 24th edition by Campbell McConnell Stanley Brue and Sean Flynn,

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