Merger Between Three And O2 Essays

Merger Between Three And O2 Essays

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A merger is achieved when two or more firms join together and under common ownership. Also, merger is a controversial method of running business, because it can lead the consequence to both good and bad ways. Two companies merge together may cause the incorporative company growth, or make the company take a bad turn. There are reasons why do firms do merger, such as to achieve profit maximization, gain more market share and be able to benefit from long run average costs (economies of scale). In this essay, merger between Three and O2 will be evaluated.

In the UK, there are top four telecommunications companies which are O2, EE, Vodafone, and Three. A Hong Kong entrepreneur Li Ka-shing who owns Hong Kong-based Hutchison Whampoa, and Three company belongs to his firm. According to the BBC News (23 January 2015), “Asia 's richest person Li Ka-shing is in talks to buy Britain 's second-largest mobile provider O2 for up to £10.25bn ($15.4bn) from Spain 's Telefonica.” After merging, it could be the largest mobile group in the UK. Also, the market share could increase from 29 %( O2) and Three (12) to 41 %( O2 & Three). So the European commission has to scrutinize this plan, because this subject will increase the power of monopoly.

Advantages of Three and O2 merger

Firstly, merger will lead to economies of scale (unit costs fall as output rises). If Three and O2 finished merged, it will be the largest telecommunications company in the UK, and figure 1 shows that the incorporated company will own 41% of market share. According to the law in the UK, it defines if a firm owns more than 25% of market share, the firm will become monopoly. Therefore, Three and O2 merger becomes monopoly. The figure 2 shows before point Q3, as quantity incre...

... middle of paper ...

... are higher than they would be with competition, so the X-inefficiency will happen.’ (Riley G 2015)
It is clear from above that pros and cons of merger. Merger is double-edged-sword for a company. It not only benefits or damages the company, but also has externalities on consumers and economy etc. Hence, before merging a company needs lawyers, analyst and competition and market authority to cheek that consumers, other firms and economy will not be disadvantaged by a merger. Using the monopoly power in the right way. All of that is what merger brings. By analyzing merger, we find out that companies want to merge because of the advantages. However, the government and consumers want to consume in a market which is perfect competition because of disadvantages, and the perfect competition is the only market structure can achieve both productive and allocative efficiency.

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