Chapter 11 - Horizontal Mergers Flashcards
horizontal mergers
mergers or acquisitions between two firms within the same industry
vertical mergers
mergers between firms at different stages of the production chain
total output typically (1) as the result of a horizontal merger, thus leading to a price (2)
- decreases
2. increase
mergers change the industry’s competition mode
a more concentrated industry (the result of the merger) may allow for a greater degree of collusion among competitor leading to higher prices
cost efficiencies
cost savings as a result of a merger
savings in fixed costs
result from eliminating duplicated functions in the new merged firm
savings in variable costs
result from different factors
merger synergies
= the potential ability of individual organizations or groups to be more successful or productive as a result of a merger
mergers normally imply an increase in (1) and a reduction in (2)
- prices
2. costs
non-merging firms as main beneficiaries
without having to occur any cost, they see the number of their competitors decrease by the merger
pre-emptive mergers
in some industries, larger conglomerates compete for targets to acquire. the primary goal of an acquisition may be to pre-empt a rival from doing so.
may even engage in a merger that decreases value, if the firm would suffer even more if the target was acquired by the rival firm
mergers occur in waves
merger waves may result from exogenous events (e.g. industry regulation) or from endogenous events (e.g. a merger between two large firms)
if barriers too entry are not very high, then mergers tend to be followed by…
… new firm entry
self-correcting mechanism
market will eventually come to the optimum number of firms in equilibrium, as two firms merge, one will have the space to enter (balance out)
three interested parties in a horizontal merger
consumers: generally lose from a merger
non-merging firms: may gain or may lose
merging firms: expected to gain from the merger
unilateral effect of the merger
is essentially a function of the increase in concentration
the merger implies a reduction in the number of purchasing choices available to consumers
collusion effect
collusion between two firms is made much easier if they hold similar market shares than if they are very different in size
the smaller the size of the merging firms, the more likely the total effect of a merger is …
…positive
behavioural remedies
relate to the future behaviour of the merged entity
example: price cannot be increased by more than x% during the next n years
structural remedies
require some form of structural change
example: sell assets y and z to a competitor
