Advantages and Disadvantages of Mergers - Research Paper Example

? Mergers Task: In terms of the oil industry, a merger of a firm can involve in the combination of the same with another. Theother firm might belong to closely related industry such as automobile manufacturing. This means that the firm from the oil industry might either dominate or submerge in such an arrangement. The less vital firm would lose its identity while the more prominent firm would retain the same. It is vital to note that a merger, especially, occurs for the purpose of competition. They would be usurping extra competition. In addition, they would be establishing large forms that ensure substantial market capture. It is vital to note that federal and state laws are controlling systems for mergers. This occurs for notable reasons. To begin with, the government regulates such arrangements because of the elimination to competition (Halibozek & Kovacich, 2005). Competition is beneficial for the government because it drives entrepreneurship. Large firms motivate smaller firms to strive to their levels. In the event of the same, the smaller firms expand to generate substantial revenues for the governments (Truitt, 2004). In addition, such firms expand their marketing scope by improving on aspects such as advertising. This means that there is an interrelation, of firms, that create mutual benefits among the same. In turn, industries provide employment to population and accord social benefits to particular countries. In the sense of mergers, the same minimizes competition between the bigger and small firm. It is vital to note that mergers benefit the bigger firms in terms of pushing the same towards maintaining their market capture. On the other hand, it is vital to note that mergers could result controlled market power. This relates to the power of monopolies. In this aspect, monopolies could exploit the market in two notable ways. To begin with, they would minimize on their output. This results into deficient products for consumers. In addition, monopolies would constrain output and raise prices. This reduces on the relative income of consumers because their previous income affords fewer goods. The monopolies ensure interaction of these two aspects in order that they generate super normal profits. The reason why the same is exploitation relates to the idea that consumers pay for products at a value that exceeds the production costs of the same. It is vital to note that consumer welfare demands production at a level whereby production costs equal prices. Production costs relates to marginal costs in economics (Mankiw, 2006). Mergers cause monopolies that may create other economical dangers. This relates to the idea that they could prevent growth of other firms. Monopolies acquire expansion advantages in the form of economies of scale. In this sense, other firms experience a difficulty in reaching the minimum efficient scale. It is vital to note that the minimum efficient scale refers to the state of production where a firm acquires maximum benefits out of the same (Mankiw, 2006). It is the most prominent level of production. This means that the merged firms would become the sole operators in the market. In the end, smaller firms would strive to rise and extinguish sooner. In case of an industry’s decision towards self-expansion, there would be notable obstacle to the same. This relates to the idea that such a firm would expand by use of capital projects. The benefits of self-expansion relates to the idea of self-dependence. In this sense, an industry faces limited obstacle form actions of other firms. It is vital to note that self-expansion leads to maximum benefits because a firm enjoys all its revenues (Truitt, 2004). However, the aspect, of capital projects, constrains the same in the quest for independent expansion. To begin with, capital projects consume significant resources in the same. This poses notable dangers. For instance, the industry would require huge amounts of capital for expansion. In case it utilizes its own capital, it will constrain the advancement of other aspects to particular business. It is vital to note that there are several aspects to businesses besides expansion. There are vital aspects such as marketing and value addition. If a firm consumes capital that belongs to its marketing segment, it risks expanding into new production elements that consumers will not recognize the same. In addition, such intensive use of capital will propel a firm to a higher production level at the expense of future expansion. This is because it takes additional resources to raise the same amount of capital that the firm utilized in its initial expansion. In addition, self-expansion by use of capital limits the benefits out of sharing the same. In the case of merged companies, they can share substantial amounts of capital. This relates to the idea that two established firms would have significant income. In addition, merged firms have the advantage of rational decisions towards expansion. This means that merge firms have a larger management that can decide on a feasible project. In addition, merged firms have the potential of negotiating towards proposed capital in expansion. This negotiation leads to cutting down of costs towards segments of expansion. It is vital to note that self-expansion by use of capital limits the benefits out of diversity to risks. It is crucial to note that mangers strive to make decisions in terms of profits and competition. In this aspect, competition would entail buying other firms or direct strategies. In case mangers decide on buying other firms, this leads to additional sources for sources of revenue. In addition, the management ensures constant profits to the company. Larger profits contribute to better benefits, out of shares, to shareholders. It also improves the amounts of dividends. It is vital to note that constant profits assure shareholders of the continuity of a firm. In certain cases, managers contribute to decisions that prevent bankruptcy or limit profits to firms. In this sense, it maintains the value of benefits towards shares. In this argument, it should be highlighted that revenue forms the principal interest of manages in a company. Other interests include the image of a firm in terms of social responsibility. The managers’ decision towards marketing and expansion eventually affects the shareholders. This pertains to the aspect of profits and value of dividends. This is vital if it occurs under a responsible firm’s image. References Halibozek, E. & Kovacich, G. (2005). Mergers and acquisitions security: corporate restructuring and security management. Burlington, MA: Butterworth-Heinemann. Mankiw, N., & Taylor, M. (2006). Microeconomics. Mason, OH: Cengage Learning. Truitt, W. (2004). What entrepreneurs need to know about government: a guide to rules and regulations. Westport, CT: Greenwood Publishing Group. Read More