Mergers and competition policy Flashcards
What is a horizontal merger and vertical merger?
Horizontal- a merger between two firms at the same stage of production in the same industry
vertical- a merger between two firms in the same industry but at a different stage of production
What is a merger
firms of equal size agree to combine and become a business that did not exist before
what is a conglomerate merger
a merger between two firms operating in different markets
What is competition policy?
An area of economic policy designed to promote competition within markets to encourage efficiency
How might growth influence a firms decision to merge?
Organic growth is less risky than external growth, as mergers often fail due to a lack of compatibility between firms
however organic growth Is limited to the rate of growth of the market
How might regulation and competition policy influence a firms decision to merge??
regulation and competition policy may discourage mergers as they reduce competition due to one firm having increased market dominance and shifting towards oligopoly. the CMA may intervene to break up mergers if they start exploiting consumers with higher prices
How might the economic agent owning the firm influence the decision of merging??
A state owned company is more likely to take into account positive externalities of consumption and production when deciding on a merger, to help correct market failure
How might the type of integration (horizontal or vertical) affect the effect of mergers on consumers and firms?
consumers- horizontal mergers mean firms benefits from better economies of scale, leading to lower prices
firms- barriers to entry increase with mergers due to higher market power ability to make more SNP
-some larger firms may experience diseconomies of scale
What are the 4 key aspects of competition policy in the UK?
- Anti-trust and cartels to stop price fixing
- market liberalisation to stop monopoly power
- state aid control to stop unfair advantages to firms
- merger control to stop market domination
who is the main competition regulator in the UK?
CMA= competition and markets authority
What is privatisation?
transferring ownership from public sector to private sector
How does privatisation encourage competition?
Public sector companies eg the Royal Mail were not conditioned by competition, so were more x inefficient and had higher costs, resulting in higher prices
-privatisation aims to increase the number of firms operating in a market and make it more contestable/ less monopolistic. depending on the extent of this, the firm may be more dynamically efficient (oligopoly/monopoly) or more static efficient (perfectly contestable/perfect competition)
What ways, other than privatisation, can competition be encouraged?
- legislation and regulation to stop mergers or force sales of assets/parts of the company
- tough laws on anti competitive behaviour ie stopping price fixing and collusion with fines
- reductions in imports/ economic integration to encourage competition internationally
