Question

If two companies are seeking regulatory approval to merge their respective businesses, which of the following will most likely be the focus of the arguments that they will present in favor of the merger?

O Consumers can purchase better-quality goods or services at a lower price.
O The newly created firm is able to take advantage of additional trade barriers.
O The newly created firm will benefit consumers by operating in the same manner as before.

Answer 1

Companies argue that mergers enable them to be more efficient, potentially reducing prices and improving quality for consumers.

Step-by-step explanation:

When two companies are seeking regulatory approval to merge their businesses, they will most likely argue that the merger enables them to operate more efficiently, which, in turn, can offer consumers better-quality goods or services at lower prices. Efficiency arises from taking advantage of economies of scale, eliminating duplicate investments and potentially passing on the cost savings to consumers. Government regulators, such as the Federal Trade Commission (FTC), favor mergers that enhance competition and consumer experience, but they also consider whether a merger might reduce competition, leading to negative outcomes like higher prices or reduced product quality. Antitrust regulators use statistical tools and models, alongside subjective judgment, to predict the merger's impact on competition and consumers.

For instance, the merger between AT&T and BellSouth was argued to benefit consumers by providing better telecommunications services at lower prices. However, critics feared that it would reduce competition and lead to higher prices. Eventually, the merger was approved and the consequences of such large-scale mergers are carefully analyzed over years to determine their true impact on consumers and the market.