ECO 365 WEEK 4 Discussion Question
2. What are the differences among horizontal, vertical, and conglomerate mergers? Provide real-world examples of each type of merger. What policy do you think the US should follow toward mergers? Why? Horizontal mergers take place between companies in the same industry. These companies are rivals who sell the same goods or services. When a merger takes place, a rival is eliminated and potential for gains become higher. A vertical merger is one in which a firm or company combines with a supplier or distributor. For example, if a car making firm is receiving chassis from two suppliers and decides to acquire them, it is a vertical merger. On the other hand conglomerate mergers are those between firms that are in unrelated business activities. The purpose of conglomerate merger is to diversify and reduce risk. A real world example of a horizontal merger is Chrysler and Diamler-Benz AG. Both companies were in the same industry when the merger took place. A real world example of a vertical merger is the merger between Time Warner and Turner Corporation. Turner Corporation provided the programming to Time Warner and was a supplier. Time Warner had a large cable operation. The real life example of a conglomerate merger is between Walt Disney Company and the American Broadcasting Company. Both firms were strategically unrelated. Horizontal mergers can lead to monopolies or unreasonable market power in the hand of one company. Similarly, vertical mergers can lead to anti-competitiveness. The US government should study the cases individually and if a merger is anti-competitive or leads to monopoly power, such mergers should be disallowed. The reason is that these mergers are against public interests. Other mergers may be allowed. 3. What effect does government intervention, taxation, and regulations have on economic behaviour? What are real-world examples of government intervention, taxation, and regulations? What are the goals of each?...
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