Discuss Broadly the Merger Assessment Techniques. How Are They Applied?
Discuss broadly the merger assessment techniques. How are they applied?
What are the advantages, disadvantages, etc.?
There are many benefits to a merger between firms. These include: exploiting economies of scale, diversification and of course increasing shareholder wealth. The reason for mergers are predominantly monetary. These benefits can either be competitive or anti-competitive, when a collusion is anti competitive a governing body should intervene. Anti competitive behaviour would reduce the level of competition within a market, this could lead to exploitation of consumers and workers. It would increase the inefficiencies within a market.
A government would deem it necessary to intervene in a merger of two firms, when this merger “significantly impedes effective competition.” This could be in one of two way; unilateral or coordinated effects. These effects would “eliminate competitive constraints on a firm and increase anti-competitive coordination,” respectively. To stop anti competitive mergers the governing body must apply assessment techniques to try and evaluate the impact of mergers. It does this by first defining what market the merger would operate in, this can be done by look at demand and supply side substitution, and potential competitors. When the market has been defined one can now assess what impact the merger would have on the market in question. These techniques are explained below:
One such technique is known as the Herfindahl–Hirschman Index, hereby referred to as HHI. The index assesses the change in the level of market power, due to the merger. A merger is deemed to be anti-competitive if the post market share of the merger is over 50%. The commission will not explore the possibility of anti-competitive behaviour; if the post-merger HHI is below 1000 in the market, with a post-merger HHI between 1000 and 2000 and a delta below 250, with a post-merger HHI above 2000 and a delta below 150. Where delta is the difference between the
What are the advantages, disadvantages, etc.?
There are many benefits to a merger between firms. These include: exploiting economies of scale, diversification and of course increasing shareholder wealth. The reason for mergers are predominantly monetary. These benefits can either be competitive or anti-competitive, when a collusion is anti competitive a governing body should intervene. Anti competitive behaviour would reduce the level of competition within a market, this could lead to exploitation of consumers and workers. It would increase the inefficiencies within a market.
A government would deem it necessary to intervene in a merger of two firms, when this merger “significantly impedes effective competition.” This could be in one of two way; unilateral or coordinated effects. These effects would “eliminate competitive constraints on a firm and increase anti-competitive coordination,” respectively. To stop anti competitive mergers the governing body must apply assessment techniques to try and evaluate the impact of mergers. It does this by first defining what market the merger would operate in, this can be done by look at demand and supply side substitution, and potential competitors. When the market has been defined one can now assess what impact the merger would have on the market in question. These techniques are explained below:
One such technique is known as the Herfindahl–Hirschman Index, hereby referred to as HHI. The index assesses the change in the level of market power, due to the merger. A merger is deemed to be anti-competitive if the post market share of the merger is over 50%. The commission will not explore the possibility of anti-competitive behaviour; if the post-merger HHI is below 1000 in the market, with a post-merger HHI between 1000 and 2000 and a delta below 250, with a post-merger HHI above 2000 and a delta below 150. Where delta is the difference between the