The purpose of this paper is to explore why government regulation is needed and the threats of mergers and expansions of a company. The industry on assignment 1 that I chose was the cigarette industry. For the purpose of this paper, I use the false scenario of R. J. Reynolds Tobacco wanting to expand its company to make cigarette lighters and start a cigarette lighter collection line. Due to government regulation, a merger would be the better choice for R.J. Reynolds and they have started looking closely at the Zippo company--a company that manufactures lighters. This paper will explore merger transactions and the government regulations that go along with this merger.
Explain why government regulation is needed, citing the major reasons for government involvement in a market economy.
A merger (or acquisition) is a combination of two companies where one corporation is completely absorbed by another corporation. The smaller or less known company loses its identity and becomes part of the more important corporation, which retains its identity. Mergers can be for competitive reasons--buying out the competition or either a attempt to create firms large enough to exercise more market power. Federal and state laws regulate mergers and acquisitions. The Federal Trade Commission (FTC) or the United States Department of Justice (DOJ) has to approve all mergers between large companies to determine the possible effects on competition. Regulation is based on the concern that mergers could potentially eliminate competition between the merging firms.
Competition law, known in the United States as antitrust law, is a law that maintains market competition by regulating anti-competitive conduct by companies. Example of an antitrust law in government regulation is the Sherman Antitrust Act; a federal law passed by Congress in 1890. It prohibits certain business activities that reduce competition in the marketplace, and requires the United States...