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Merger of Two Firms and its Impact on Product Price


Discuss whether a merger of two firms in the same industry will be likely to reduce the price of the product.


Market Structures and Competition

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I. 🍃Introduction
- Definition of horizontal merger
- Importance of understanding the potential benefits and drawbacks

II. Reasons why a horizontal merger might be beneficial
- Economies of scale
- Example ➡️1
- Example ➡️2
- Lower average costs
- Ability to lower prices
- Maintain/increase profit
- Pass on savings
- Rationalisation
- Cutting out duplication

III. Reasons why a horizontal merger might not be beneficial
- Diseconomies of scale
- Example ➡️1
- Example ➡️2
- Increased market share/power
- Becoming a price maker
- Reducing competition
- Making demand price-inelastic
- Potential for prices to rise rather than fall

IV. 👉Conclusion
- Summary of key points
- Importance of carefully considering the potential benefits and drawbacks before pursuing a horizontal merger.

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