Discussion Questions DQ1
What are the differences among horizontal, vertical, and conglomerate mergers? Why or why not? Or current Examples (numeric, chart or graphs)
Conglomerate mergers are the processes of linking or joining firms that do not compete in the product market because they do not produce the same type of products or they do not serve a market on the same geographical location. The reason behind such mergers is mainly to maximize the economic activities that the company is involved in and portfolio of business lines. For example, if a car manufacturing and assembly firm merges with a textile company, this would be considered as a conglomerate merger since they do not deal in the same product and they do not compete in the same market. A conglomerate merger could be mixed or pure. Pure conglomerate mergers occur when there are no direct or indirect similarities between the merging companies. On the other hand, mixed conglomerate occurs where the companies lack relationship in terms of competition but they have some connections. In such a case, the companies could belong to the same industry. Conglomerates are important because they help to increase market share, diversify and reduce exposure to risks.
Horizontal mergers are mergers between companies who compete in the same market directly. This means they produce the same product in the same market. The main reason behind this type of merger is first off is to eliminate competition, expand company operations in the specific industry that it trades in and improve the economies of scale. This will also help in widening the line of products produced, decrease in the working capital requirements and fixed assets invested. Horizontal merging is also important because it helps the merging companies to acquire dominance and hence improve on their market share. However, horizontal mergers are likely to result in a monopoly. For instance, when a large baking company buys a smaller one, this type of merger makes up a horizontal merger.
Vertical mergers are mergers between companies that are producers of the same product in the same market but they produce at different levels of production. The reason behind this type of merger would be that of improving the efficiency and smooth flow of activities in the firm. This also reduces costs like carrying costs and staff costs. Vertical mergers are important because they reduce uncertainty on the quality of goods supplied by the supplier and their availability. In addition, it helps reduce chances of a monopoly being formed by the suppliers. When a computer manufacturing company takes up a computer-marketing firm, the type of merger would be a vertical one.
What does the U.S. government hope to achieve through the use of its antitrust policy? Why or why not? Examples
The anti-trust policy is intended to promote competition in the market. The policy protects both the consumer from exploitation and the producer from legal redress. The U.S. government hopes to achieve a working solution to prevent market failure. The government has agencies that are known as regulators of competition, which put into action the anti-trust laws. The antitrust policy aims at eliminating monopolies efficiently. They aim at prohibiting mergers that are likely to increase monopolistic tendencies and therefore take action on companies that attempt to control prices. These laws are important because they help in ensuring that there is fair distribution of resources. However, these laws are likely to affect the companies that grow such that they dominate the market because they will be viewed as monopolies. Example of where the antitrust policy is applicable is in mergers that result in monopolies such as horizontal mergers.
How do the resolutions of the IBM, AT&T, and Microsoft antitrust cases differ? Why or why not? Examples
Microsoft Corporation had settled to pay IBM seven hundred and seventy five million dollars to settle a lawsuit that involved anti-trust issues. The two companies, both dealing in software management and production, cannot uphold their antitrust laws since they might end up producing the same product. Therefore their antitrust cases have to differ but in knowledge to each other. This means that each of the three companies must make the other aware of the products that they are launching into the market to avoid the conflict of having antitrust lawsuits again. Western Union challenged the patents of AT & T. AT &T was supposed to depart from telegraph market while western union was supposed to depart from telephone market. Therefore, the two cases differed one was based on patents and therefore they were not supposed to produce the same commodities while the other was based on the monopolistic tendencies of Microsoft.
How does international competition affect domestic antitrust policy? Why or why not? Examples
International competition affected the domestic antitrust policy since the American firms used the policy to conceal the nature of business they were doing. When the competition arose, they had to lift the policy since the markets had to know what they were dealing in order to sell. The international competition may wipe out the domestic companies if they are not lifted because they will not be in a position of competing with foreign companies. Prevention of mergers will make companies to fail to enjoy the economies of scale and therefore they will be limited in growth as compared to foreign companies. Therefore, international competition makes the antitrust policy unfavorable to the domestic companies.
Colander, David. Economics. Miss State, MS: Irwin/McGraw-Hill, 2010. Print.
Temple University. “School of Business Administration.” Journal of economics and business, Volumes 27-28. 3 (1974): 1. Print.