Pros and Cons of Mergers

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Pros and Cons of Mergers In this paper I will discuss the pros and cons of mergers. Are mergers in the public interest or are mergers just beneficial for top executives and shareholders? When looking at mergers it is important to look at the subject on a case by case basis as each merger has a different possible benefits and costs. These are the most likely advantages and disadvantages of a merger. An advantage of a merger is Network Economies. In some industries, firms need to provide a national network. This means there are very significant economies of scale. A national network may imply the most efficient number of firms in the industry is one. For example, when T-Mobile merged with Orange in the UK, they justified the merger on the grounds that: “The ambition is to combine both the Orange and T-Mobile networks, cut out duplication, and create a single super-network. For customers it will mean bigger network and better coverage, while reducing the number of stations and sites – which is good for cost reduction as well as being good for the environment (Orange).” Another advantage is research and development. In some industries, it is important to invest in research and development to discover new products and technology. A merger enables the firm to be more profitable and have greater funds for research and development. This is important in industries such as drug research. Mergers are also advantageous through other Economies of Scale. The main advantage of mergers is all the potential economies of scale that can arise. In a horizontal merger, this could be quite extensive, especially if there are high fixed costs in the industry. Mergers also avoid duplication. In some industries it makes sense to have a merger to avoid duplication. For example two bus companies may be competing over the same stretch of roads. Consumers could benefit from a single

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