31 Jan Implications of Mega Mergers
More than 70% of the US residents oppose megamergers, yet it is worth considering taking an unbiased look at the consumers’ advantages and disadvantages of this economic occurrence.
In October 2016, AT&T made the announcement that it was interested in purchasing Time Warner Cable for a sum of $84.5 billion. The amalgamation would result in creating one of the largest multichannel service-providing organizations in American history. The announcement resulted in setting off disparagement from Congressional Democrats and Republicans who contended that big corporate amalgamation create dominance which puts a check on competition from mushrooming. Since President Barack Obama assumed office, his government has stopped many mega-mergers from happening, for example, the merging of Sprint and T-Mobile, AT&T and T-Mobile, and Allergan and Pfizer. In 2015 mergers and acquirement carrying the worth of 3.8 trillion dollars took place— the phenomenon helped in making the year absolutely one of a kind for corporate integration in the US history.
Those who support the corporate merging, debate that the government must not get in the way of corporations and free market should be granted approval to follow its own course of action. Those who criticize mega-mergers are of the view that it is a stumbling block to the free market (it minimizes competition and soars up prices) and an infringement of the Sherman Antitrust Act (the law checking intentional monopolies issued by Congress in 1890).
We feature a list of consumers’ pros and cons reading which will help you resolve your standpoint. Here is the mention of the pros and cons:
Prices plummet via economies of scale – The most significant advantage of mergers is economy of scale (savings because of enhanced production); that a corporate company can provide its customers. In a parallel alliance, this could be rather widespread and can cut down stable costs. Those savings are typically passed on the customers and the rates of the product plummet.
Prices plummet via network economies – In specific industries, companies are required to furnish with a national network with economies of scale. It generally refers to that a single company is the most organized mean to help the industry run well. For example, with the merging of T-Mobile with Orange in the UK, they rationalized the amalgamation on the reason that it put a check on duplication and built a unique super-network. Customers came into possession of a vaster network with improved coverage. It was an excellent strategy for cost reduction and the atmosphere.
Prices appreciate via monopoly – A merger is very likely to cut down competition and furnish the new company with the power of monopoly. With minimum competition and enhanced market share, the newly-created company can typically enhance prices for its target customers. For example, there is a conflict between British Airways (parent group IAG) and BMI on the merger. This merger will provide British Airways with an enhanced number of flights taking off Heathrow and, in other words, the power to fix improved prices.
Choices dwindle – If a monopoly thwarts the competition, a merger can result in creating a fewer product’s preference for the target consumers.
Loss of jobs for employees – A merger can result in creating job losses of employees. This is mainly a significant concern if the merger is a hardline monopoly by an ‘asset stripping’ company—an organization that seeks to amalgamate and ditch under-performing sectors of the target organization.
Looking at the examples mentioned above of potential pros and cons, it may be easy for you to reach a decision whether a mega-merger is worthy of appreciation or criticism. The answer is based on a wide variety of factors. So, they can be either be good or bad or both. One sure thing that they however definitely create is unpredictability and sweeping change.