Question

Write an essay on why a merger would be an effective mechanism to resolve the problem of competition in an oligopolistic market like the movie theatre industry (Golden Village,Cathay,Shaw as dominant business leaders in the market) in Singapore.

Answer 1

Answer- Merger refers to the combination of two firms to achieve economies of scale and to share their resources to achieve higher profits. Oligopoly refers to few firms in the market in which one firms decision can significantly influence the other firms decision. Competition level in oligopoly is relatively high than monopoly and merger would be a great option to reduce the effect of competition in the oligopolistic market mechanism because -

• Merger of firms doesn’t involve much cash and is beneficial for both the firms as both if them can achieve economies of scale and share their strategies thus, they don’t have to worry about competing agaisnt each other.

• Merger helps in tax savings as it doesn’t involve tax. Firma can share the tax lianilities with the profits that they will earn by sharing the resources.

• Due to sharing of resources the firms can save their time in purchasing new assets or leasing assets etc. This will promote a friendliness environment in the competition world.

• Firms compete to increase their market share and profit level but but merging they can do the same and not affect each other in any way.

• Merger helps firms in enjoying the sharing of resources and helps both the firms involved in gaining a better competitive edge. Due to sharing of resources the people are benefitted from the quality of services and goods that they receive.

Thus, In a nushell we can conclude that competition helps to offset the effect of the competition.