Monday, September 17, 2007

What determines whether a Merger is in Public Interest?

  1. What is the market share of the new firm at a local, regional, national, and european level? e.g. Tesco not allowed to merge with Safeway, but Morrisons could merge. This was because Tesco / Safeway would have had too much national market share.
  2. Are consumers likely to face less competition and higher prices as a result of the increased market share? - Too much market power enables firms to set higher prices
  3. Can the new firm exploit monopoly power in paying suppliers less? - A concern over the merger of Tesco and Safeway was that Tesco's could have squeezed farmer's profit margins even more.
  4. To what extent does the merger create economies of scale? Are their significant fixed costs in the industry? Is there potential for diseconomies of scale, - firms gets too big and inefficient.
  5. Does the industry require risky investment in new technologies and products? E.g. oil exploration and development of medicinal drugs
  6. Is the industry competitive on a global scale. E.g. a national monopoly may face competition from other countries. This may be relevant in the steel industry.

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