Business Merger

A merger will lead to a bigger firm and a greater market concentration. This can have both advantages and disadvantages for the public interest. A merger is likely to reduce competition and give the new firm more market power. Therefore, it will be able to increase prices leading to a decline in consumer surplus and could cause economic inefficiency. This occurs when goods are not distributed optimally according to consumer preferences. However, it depends upon the market share of the new firm. When, if ever should a government intervene to prevent a merger or takeover?

Sample Solution