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Chapter 15: Problem 7

An article in the Wall Street Journal quoted a DOJ antitrust official as saying, "Mergers between substantial competitors, especially in already concentrated industries, can give companies far too much power over the markets in which they operate." a. What does the official mean by a "concentrated industry"? b. What does he mean by "power over the markets in which they operate"? c. The article also quoted the official as saying that mergers might benefit the public "when they bring together complementary assets, people and ideas that help lower production costs or spur greater innovation." Will these positive aspects of a merger always be enough to offset the negative aspects you discussed in answering part (b) of this problem? Briefly explain.

Short Answer

Expert verified
A 'concentrated industry' is a sector dominated by a few firms with significant market share. 'Power over the markets in which they operate' refers to companies significantly influencing market situations and conditions. While mergers have potential positives such as innovation and cost savings, they also have potential negatives like decreased competition and increased prices. Whether the positives outweigh the negatives depends on individual scenarios.

Step by step solution

01

Define a Concentrated Industry

A 'concentrated industry' refers to an industry where a large percentage of market share is controlled by a small number of firms. In this scenario, these few companies have the ability to influence industry trends, prices, and other factors due to their significant control over the market.
02

Define Power Over Markets

'Power over the markets in which they operate' means that the company has significant influence over the market situations and conditions. They can set prices, determine supply, decide on the introduction or discontinuation of products or services, and have a strong influence on competition.
03

Weigh the positives and negatives of mergers

While mergers can bring together complementary assets, people, and ideas that spur greater innovation or low production costs, these potential positives may not necessarily always outweigh the negatives. For example, mergers can lead to decreased competition, resulting in higher prices and less choice for consumers. Mergers may also lead to a consolidation of power in the hands of the few, which could potentially influence the industry and the market in ways that are not beneficial to the consumer. Also, the process of merging may disrupt productivity, hurting employees and consumers in the short term. The balance of these pros and cons would depend on the specifics of each scenario.

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