Examine two reasons Company A plans to merge with Company B
- Identify what kind of integration it is
E.g. Is it horizontal or vertical?
- Definition of type of integration.
E.g. Horizontal integration is when two firms in the same industry and at the same stage of production merge together. For example Sony and Ericson.
- Reason number 1 with application.
E.g. Increase in market share and power, therefore they will be better able to compete against other rivals. If two firms that are smaller merge together, this will make it easier for them to compete against a larger rival. + Relevant application point.
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Reason number 2 with application. E.g. The less the number of firms in the market, the easier it would be for firms to collude and increase prices for example and increase profts. + Relevant application point.
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1 Detailed evaluation or 2 evaluation comments.
Detailed: However if firms are investigated and collusion is discovered this could result in large fines being imposed reducing profitability. It will depend on the size of the fine and the extra revenue gained by collusion.
Comments: (1) If the merged firm becomes too big this may lead to diseconomies of scale. (2) However, the financial cost of the takeover may be too big.
