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    Benefits of Mergers: 1. Economies of Scale. This Occurs When A Larger Firm With Increased Output

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    The document discusses the potential benefits of mergers between firms. It outlines several key benefits: 1) Economies of scale from increased output and bulk buying allow lower average costs and potentially lower consumer prices. 2) Mergers can help firms compete internationally and deal with multinational threats. 3) Larger merged firms have greater profits to invest in risky R&D that can lead to better quality goods. Examples of potential mergers are provided.

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    Benefits of Mergers: 1. Economies of Scale. This Occurs When A Larger Firm With Increased Output

    Uploaded by

    Akshita
    42 views3 pages
    The document discusses the potential benefits of mergers between firms. It outlines several key benefits: 1) Economies of scale from increased output and bulk buying allow lower average costs and potentially lower consumer prices. 2) Mergers can help firms compete internationally and deal with multinational threats. 3) Larger merged firms have greater profits to invest in risky R&D that can lead to better quality goods. Examples of potential mergers are provided.

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    The document discusses the potential benefits of mergers between firms. It outlines several key benefits: 1) Economies of scale from increased output and bulk buying allow lower average costs and potentially lower consumer prices. 2) Mergers can help firms compete internationally and deal with multinational threats. 3) Larger merged firms have greater profits to invest in risky R&D that can lead to better quality goods. Examples of potential mergers are provided.

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    42 views3 pages

    Benefits of Mergers: 1. Economies of Scale. This Occurs When A Larger Firm With Increased Output

    Uploaded by

    Akshita
    The document discusses the potential benefits of mergers between firms. It outlines several key benefits: 1) Economies of scale from increased output and bulk buying allow lower average costs and potentially lower consumer prices. 2) Mergers can help firms compete internationally and deal with multinational threats. 3) Larger merged firms have greater profits to invest in risky R&D that can lead to better quality goods. Examples of potential mergers are provided.

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    Benefits of Mergers

    28 November 2018 by Tejvan Pettinger


    A merger occurs when two firms join together to form one. The new firm will
    have an increased market share, which helps the firm gain economies of
    scale and become more profitable. The merger will also reduce competition
    and could lead to higher prices for consumers.

    The main benefit of mergers to the public are:

    1. Economies of scale. This occurs when a larger firm with increased output


    can reduce average costs. Lower average costs enable lower prices for
    consumers.

    Different economies of scale include:


     Technical economies; if the firm has significant fixed costs then
    the new larger firm would have lower average costs,
     Bulk buying – A bigger firm can get a discount for buying large
    quantities of raw materials
     Financial – better rate of interest for large company
     Organisational – one head office rather than two is more efficient
    A merger can enable a firm to increase in size and gain from many of these
    factors.

    Note, a vertical merger would have less potential economies of scale than a


    horizontal merger e.g. a vertical merger could not benefit from technical
    economies of scale. However, in a vertical merger, there could still be
    financial and risk-bearing economies.
    Some industries will have more economies of scale than others. For example,
    a car manufacturer has high fixed costs and so gives more economies of
    scale than two clothing retailers. More on economies of scale
    2. International competition. Mergers can help firms deal with the threat of
    multinationals and compete on an international scale. This is increasingly
    important in an era of global markets.
    3. Mergers may allow greater investment in R&D This is because the new
    firm will have more profit which can be used to finance risky investment. This
    can lead to a better quality of goods for consumers. This is important for
    industries such as pharmaceuticals which require a lot of investment. It is
    estimated 90% of research by drug companies never comes to the market.
    There is a high chance of failure. A merger, creating a bigger firm, gives more
    scope to tolerate failure, encouraging more innovation.
    4. Greater efficiency. Redundancies can be merited if they can be employed
    more efficiently. It may lead to temporary job losses, but overall productivity
    should rise.
    5. Protect an industry from closing. Mergers may be beneficial in a
    declining industry where firms are struggling to stay afloat. For example, the
    UK government allowed a merger between Lloyds TSB and HBOS when the
    banking industry was in crisis.
    6. Diversification. In a conglomerate merger, two firms in different
    industries merge. Here the benefit could be sharing knowledge which might
    be applicable to the different industry. For example, AOL and Time-Warner
    merger hoped to gain benefit from both the new internet industry and an old
    media firm.
    Examples of mergers
    2017 – Amazon merger with Whole Foods. Amazon has knowledge and
    expertise in online shopping. Whole Foods is a major food retailer. It is
    hoped the merger will enable Whole Foods to benefit from Amazon’s existing
    infrastructure and online delivery.
    2000 Glaxo Wellcome Plc and 

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