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
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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
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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,
In the literature one finds a large number of explanations for the occurrence of mergers and acquisitions. Sometimes, these explana-tions are also applicable to related forms of interindustrial links such as joint ventures or strategic alliances. Therefore it is necessary to define the term merger and acquisition as it will be used throughout this paper.
A merger is a partial or total combination of two separate business firms and forming of a new one. There are predominantly two kinds of mergers: partial and complete. Partial merger usually involves the combination of joint ventures and inter-corporate stock purchases. Complete mergers are results in blending of identities and the creation of a single succeeding firm. (Hicks, 2012, p 491). Mergers in the healthcare sector, particularly horizontal hospital mergers wherein two or more hospitals merge into a single corporation, are increasing both in frequency and importance. (Gaughan, 2002). This paper is an attempt to study the impact of the merger of two competing healthcare organization and will also attempt to propose appropriate clinical and managerial interventions.
So as to define the impact of a merger on competition in the common market, it is suitable to consider the possible efficiencies claimed by the interested parties that might compensate the concentration’s negative effects on competition, and in particular the potential harm to consumers. If the efficiencies result in a balance between the “positive” and “negative” effects of a concentration, consequently the concentration might not significantly impede effective competition, in the common market or in a substantial part of it. To that end, the Commission should clarify the circumstances under which it may take efficiencies into account when determining the negative effects of a transaction.
It is proper to present a business definition of merger as it found on legal reference with the ultimate goal in the pursuing of an explanation on which this paper intents to present. A merger in accordance with the textbook is legally defined as a contractual and statuary process in which the (surviving corporation) acquires all the assets and liabilities of another corporation (the merged corporation). The definition go even farther to involve and clarify about what happen to shares by explaining the following; “the shareholders of the merged corporation either are paid for their share or receive the shares of the surviving corporation”. But in simple terms is my attempt to define as the product or birth of a corporation on which typically extends its operation by combining with another corporation. So from two on existence corporations in the process it gets absorbed into becomes one entity. The legal definition also implied more than meet the eye. The terms contractual and statuary, it implied a process on which contracts and statuary measures emerge as measures to regulate, standardized, governing or simply at times may complicate whole process. These terms provide an explicit umbrella and it becomes as part of the agreement formulating or promoting a case for contracts to be precedent, enforced or regulated in a now or in the future under a court of law under the Contract Business Law Statue of Practice. As for what happens to the shares of the involved corporations no more explanation is needed as the already actions mentioned clearly stated of the expectations of a merge’s share involvement.
Conglomerate mergers result in joining of firms which compete in different product markets, and which are situated at different production stages of the same or similar products. That is to say, neither the products nor the inputs of these merging firms are the same. Conglomerate mergers result in significant advantages gained by the merging firms since they are the fastest means of entry into different activity fields in the shortest possible time span. Moreover, they reduce the financial risks by “not putting all the eggs in one basket” (Gaughan, 2007). There are three types of conglomerate mergers:
Mergers is when two firms or entities, often of about the same size, agree to become one single new entity or organization rather than remain separately owned and/or operated. This kind of action is often referred to as a ‘merger of equals’. Financially, the stocks of both companies are migrated into a new stock with the new name of the company issued. (CIPD, 2009)
There are two types of mergers: horizontal and vertical. A horizontal merger is one that occurs when two or more organizations with similar goals, missions or interests merge together to create one organization. A vertical merger is one that occurs when two or more organizations with different missions come together. Usually, the services they offer can work together in some complimentary way. Horizontal mergers are more common in the non-profit sector (An Itch To Get Hitched).
Another reason for combining the two companies is to increase its capital base so that it can be able to expand its operations and have sufficient funds to finance its projects which include goals and mission. Higher capital base in any company is important since the company can be able to diversify its projects and also increase its dividends payouts since there will be no need of retained
When analyzing the market, one must consider the power that buyers and sellers have. When a seller controls all of the power it is considered a monopoly, they are able to “raise [their] price above competitive levels” which makes it unfair for consumers in a market as they are only given the option to buy from that particular seller regardless of the prices they impose (Stucke, 2013 p. 1510). When a buyer controls all of the power it is considered a monopsony, here the buyer “can lower the price[s] below competitive levels for the goods and services it buys” (Stucke, 2013 p. 1510). The action a buyer takes to lower the prices can also be considered unfair to the supplier, this can “reduce the
Firstly, the need for achievement is met by understanding that people strive to master difficult situations, endeavors or challenges. This idea works on both an organizational level, as well as an individual level. From an organizational level, it is well known that a merger of this magnitude had never been attempted. With that brings a great challenge to succeed, and lets the leadership work in new and innovative ways to make such a merger successful. McClelland’s theory states, in regards to need for achievement, that people strive “To excel one’s self…to rival and surpass others… to increase self-regard by the successful exercise of talent” (Kreitner & Kinicki, 2010, p. 215). By this definition, the merger would motivate leadership to excel in the face of a challenge, and to increase their professional self-regard in their success in doing so. On an individual level, you are asking the performers and employees to recognize both economic and social climates, and to come together in action to save both their careers, as well as their passion in life. Such a merger would only embolden self-worth and perceived achievement, because they would be part of a much larger organization more adverse to risk and future change, and they would easily be able to look at other similar organizations and realize they were part of an organization who accomplished something never before attempted.
When two companies decide to combine forces and become one bigger, richer mega company, it is called merging. This process forms a new company, combining the money and ideas of what used to be two different entities into one. This, however, is not the only thing that results from merging two different companies, and since we will be discussing the merging of two companies in the pharmaceutical industry, the impact will be incredible. Of course, the merging of two companies will not only have positive impacts but it will have many negative side effects as well. Furthermore, depending on the size of the merging companies and the goals of the people leading these companies there will always be contradictions according to the long-term goals or short-term goals depending on what both parties’ interests are. Our company, Verduga Inc. is contemplating to merge with Coronado-Salinas Inc., so before we rush into such a merger we must contemplate the positive and negative aspects of such a move. When it comes to mergers there are always many possible positive and negative impacts due to the effects of merging; these effects more widely impact the fields on research and development, on employment and management, stocks and shareholders, monopolization, and ingenuity.
Mergers and acquisitions immediately impact organizations with changes in ownership, in ideology, and eventually, in practice. There are multiple reasons, motives, economic forces and institutional factors that can, taken together or in isolation, influence corporate decisions to engage in mergers or acquisitions. The financial risks of merging with or acquiring an organization in another country and how those risks can be mitigated are important issues for corporations to conduct research on. This paper will examine the sensible and dubious reasons for mergers and acquisitions and the benefits and costs of the cash and stock transactions.
Mergers mean two or more companies combining together to form one business or firm. There are six different types of mergers: Horizontal, Vertical, Conglomerate, Market extension, Product Extension and Diversified activity.
...titive effects. Third, the Agency assesses whether entry would be timely, likely and sufficient either to deter or to counteract the competitive effects of concern. Fourth, the Agency assesses any efficiency gains that reasonably cannot be achieved by the parties through other means. Finally the Agency assesses whether, but for the merger, either party to the transaction would be likely to fail, causing its assets to exit the market. The process of assessing market concentration, potential adverse competitive effects, entry, efficiency and failure is a tool that allows the Agency to answer the ultimate inquiry in merger analysis: whether the merger is likely to create or enhance market power or to facilitate its exercise.
Financial problems. One can say that there are mergers that could be successful only details that were not considered as financial problems of each member.