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Merger Effects on Profits


Discuss whether or not a merger will increase profits.


Firm Behavior and Strategies

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Preview Answer

I. 🍃Introduction
- Brief explanation of the topic

II. Reasons why a merger might reduce competition
- Increased market share
- More inelastic demand for products
- Ability to raise prices
- Greater advantage of economies of scale
- Rationalisation and lower average cost
- More ideas and innovation
- Vertical merger and greater control over quality

III. Reasons why a merger might not reduce competition
- Reduced competitive pressure to keep costs low and quality high
- Difficulty in adopting common methods of production
- Duplication of equipment and staff
- Diseconomies of scale and higher average cost

IV. Examples of firms experiencing benefits and drawbacks of mergers
- Two examples for each category

V. 👉Conclusion
- Summary of the main points
- Final thoughts on the topic

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