Mergers and Competition (Essay Sample)
There have been several mergers of large firms within oligopolies. In this assignment, you are to select one merger that has been approved by the Federal Trade Commission (FTC) in the last five years; describe and analyze the impact of those mergers, on industry, on consumers, and on society as a whole. Complete the following:
•Go to the Federal Trade Commission's Web site and select 1 merger that the FTC has approved in the last five years.
•Write a paper that describes the principle firms, their industry, and that summarizes arguments in support of the merger and arguments opposing the merger. The paper should be approximately 2 pages in length, excluding the title page and bibliography.
•In addition to the 2 pages of content, include a title page, abstract, and bibliography.
Some Things to Consider: Industry Description
Consider the following:
•Describe the firms in the proposed merger. List their annual sales, and extent of their operations.
•From the firms' point of view, what are some of the incentives to consolidate?
•Describe the competitive environment within the industry.
Some Things to Consider: Summaries
Consider the following:
•Explain whether the competitive environment in this industry benefits society or not.
•Is a high degree of market concentration a boon or threat to consumers? Explain.
•How would the merger benefit the firms?
•Would it benefit society or not? Explain.
You might use one or more of the following concepts: productive efficiency or administrative efficiency.
Econ Unit 5IP: mergers and competition
The Reynolds-Lorillard merger in the tobacco industry was approved in 2015, with both firms being major players in the industry. Reynolds was to manufacturer the major brands of Lorillard, but other companies were given a stake in the company’s operations. The merger sought to improve the consolidated company’s competitiveness, using the economies of scale and efficiency to improve the company’s returns. Nonetheless, there are concerns on whether the consolidated might weaken completion and result in higher prices.
Reynolds American Inc (RAI) and Lorillard Inc (LO) merged in 2015 after negotiations stretching from 2014, with FTC having previously raised concerns on antitrust issues. Since the two companies have a significant market shares in the cigarette market segment, and there was concern that the merger would have an impact on competition. The cigarettes industry is in the consumer goods sector, and Reynolds American Inc manufactures and sells cigarettes and tobacco related products in the U.S. and has been in existence since 2004
In the financial year ending December 2014 Reynolds American Inc had reported total revenue of $ 8.471 billion and a net income of $ 1.47 billion (Yahoo Finance, 2015 a). Up until Lorillard’s acquisition, the company was one of the longest surviving companies in the U.S having been founded in 1760, with menthol the company’s top selling brand and the second in the U.S (Yahoo finance, 2015 b). The incentive for Reynolds’s to consolidate is that the company would have a larger market share, and better returns over time with the company selling cigarettes under different brands including those of Lorillard Inc. Additionally, the consolidated company would enjoy the economies of scale while also reducing costs because there are fewer operational redundancies. The main competitors in the U.S market are Philip Morris USA Inc and Altria Group Inc, both of which are private companies. However, there are other players with a global presence tha...
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