Microeconomics: Merger Analysis and the Justice Department's Position on Corporate Consolidation
Overview
This paper examines mergers in microeconomics, defining them as agreements that unite two companies to increase market share and achieve economies of scale. It analyzes the conditions under which the Justice Department approves or opposes mergers, focusing on factors such as network economies, monopoly formation, and consumer choice.
What this coursework covers
- Definition and overview of mergers and their effects on market competition
- Reasons the Justice Department agrees with mergers: network economies, research and development investment, and monopoly control
- Reasons the Justice Department disagrees with mergers: monopoly power formation and reduction in consumer choice
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Microeconomics: Merger
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Microeconomics: Merger
A merger is defined as an agreement that unites two companies into a new company. The merger enables the new company to have an increased market share, allowing the firm to be more profitable and acquire economies of scale (Arnold, 2019). Moreover, the merger reduces the competition, although sometimes, it could increase prices for customers.
A merger integrates two separate firms into one, therefore reducing the degree of competition between the two syndicates. As such, when two different companies in the United States announce a merger with one of the companies is above the size of the minimum sale, the law requires them to notify the “Federal Trade Commission (FTC)” (Mouawad & Drew, 2019). In the 1990s, corporate mergers had increased significantly. However, the alliances started decreasing in the 2000s. It is essential to note that in some instances, the justice department agrees with mergers, while in other cases, the department disagrees with mergers.
Why the Justice Department Agrees with Mergers
The justice department agrees with mergers because of the formation of network economies. Companies, in particular, industries, are required to provide a national network, creating substantial economies of scale. According to Mouawad and Drew (2013), a national network denotes the number of syndicates required in a single industry. For example, the merger between Orange and T-Mobile companies in the United Kingdom enabled the industry to get rid of duplication.