In a separate group discussion board, present two arguments. The first should ar
ID: 1251186 • Letter: I
Question
In a separate group discussion board, present two arguments. The first should argue in favor of the proposed merger, from the perspective of the firms. The second agrues against the proposed merger from the perspective of the broader public interest. In those arguments, answer the following questions.Explain the importance of competition among firms.
Explain whether the competitive environment in this industry benefits society or not.
Is a high degree of market concentration a boon or threat to consumers? Explain. Use either the allocative efficiency or dynamic efficiency arguments.
Can the oligopoly market structure benefit both consumers and businesses by forging common standards in industries that experience rapid technological change?
Part 3) Written Report:
Explanation / Answer
Argument favoring a merger:
A merger will increase the size of the market catered, thus increases the scale and reduces the cost of production.
By merger and due to lack of competition, the firm can charge a price much higher than the marginal cost of producing an output, thus reaping abnormal monopoly profits.
A merger guarantees higher profits thus increasing the shareholders wealth.
Argument against a merger:
Merging will reduce competition in the market, this will act against the zeal to reduce cost or create a better product in the market. So a merger can make the production process or technology to stagnation.
Competition on the other hand will create an urge among the firms to create better products at lower costs.
Thus competition will tend the firms to move towards allocative efficiency in the long run; where the price of output equals to the minimum of the long run ATC curve, thus leading to an optimal utilization of the resources.
Thus competition will provide a product to a consumer at price equal to the marginal cost incurred on the product. Where as in a merger which creates oligopoly or monopoly market, the price of the product will be higher than the marginal cost leading to market inefficiencies.
As the consumer pays a higher price than the marginal cost incurred on the product, a consumer demand for a product is exploited.
Thus an oligopoly market structure which is highly concentrated, without having proper competition will cause stagnation in product development, production process improvement and technological advancement.
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