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Conglomerate Mergers - Essay Example

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Conglomerate Mergers

It is rare indeed for such mergers to lead any substantial reduction in competition, solely due to the conglomerate effect.
In a few cases, especially if the products acquired, complement the acquirer's own products, "potentially adverse effects can be identified related to so-called 'portfolio power'"2. These are mergers between complementary products, neighbouring products, and unrelated products. A "pure" conglomerate merger involves the acquisition of products that are not related on the demand or supply side. It is a merger in which there is neither horizontal, vertical, complementary nor neighbourhood relationship between the products.
Conglomerate mergers involve portfolio power. When the combined market power of a portfolio of brands exceeds the market power of the sum of its parts, a firm is said to have portfolio power. This enables the firm to significantly reduce the competition, as its exercise of market power in the individual markets is much more effective. Portfolio effects could possibly have anti-competitive effects, especially where they affect the structure of the market directly. This increases the possibility of entry preventing strategies and eliminates the competitive restrictions brought to bear upon it by neighbouring markets3.
Frequently, customers get an incentive in the form of reduced transaction costs by purchasing from the portfolio of one supplier, where the supplier's firm has many brands under its control due to a conglomerate merger; this is the effect on market structure of conglomerate mergers. If the non - portfolio competitors or competitors who control a few brands do not impose an effective competitive restriction on a firm which has portfolio power, then competition may be reduced to a large extent4.
Large conglomerates will usually encourage customers to purchase a range of their products and the result of a conglomerate merger may be that tying or bundling occurs if complementary goods are sold by such firm. This may have adverse effects on competition. Sometimes the predatory behaviour of a conglomerate merger may be feasible when the competition is confined to a small area, thereby enabling firms to face a competitive threat in respect of a few brands or in a few geographic markets at point of time.5 Finally, conglomerate mergers usually facilitate coordination if the merged firm's opponents in one market are also contenders in some of its other markets6.
In the case Tetra Laval v. Commission, The European Commission gave a ruling whereby it prohibited the merger of Sidel SA and Tetra Laval BV. Sidel was a manufacturer of stretch blow moulding machines used for packaging liquid foods in plastic. Tetra was a dominant company in the carton-packaging market operating through a related company.
Although conglomerate mergers, similar to this one are usually neutral in respect of the competitive aspect, the European Commission was of the opinion that this merger would only serve to enhance Tetra's leverage as in respect of its dominant position in the carton-packaging market. It further, held that this would serve to influence customers using plastic packaging to buy Sidel's machines, thereby foreclosing smaller competitors from the market for those machines. The parties to this merger offered to address the Commission's concerns by entering into certain binding commitments that would preclude the merged entity from engaging in anticompetitive conduct. The ...Show more


A merger is said to take place when two companies become one by combining all the assets and liabilities and take a new name. The reason for mergers is usually to create value, because the value of combined companies is always higher than that of the individual companies that are combining1…
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Conglomerate Mergers essay example
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