Consider the Supermarket Industry. Tesco dominates the market with a 43% market share. Its closest rival is Sainsbury's with 19% of the market. Outline the potential costs and benefits of a merger between the two supermarkets.
Benefits:
Economics of scale- shown on graph (movement to lower part of LRAC curve) can potentially pass on cost savings
Profitability
shared resources
High tax revenue for the government
Costs:
Monopoly power can lead to price increase- reduce CS
Exit from the market from other supermarkets
Lack of innovation
Diseconomies of scale from extensive network
inefficiency
HV
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