Question

4. a. State a recent (since 2009) case where government attempted to stop two firms to merge, and explain the reason behind government’s decision unwillingness to allow the merger.   

b. Briefly state why monopolies are not desirable?   

c. Briefly state two ways monopolies can be beneficial for buyers?      

Answer 1

Part A

The merger means that the two separate firms combine with single firm and Acquisition means that taking over of another firm. Government not always but some time prevents the merging and acquisition by using the antitrust law. Government prevent this because of the restriction of the creation of monopoly power. That means single firms dominated in the entire sales of the economy. And these firms permanently charge higher price because of reduction in competition. And, it will improve their profit making power.

Part B

There is immense inefficiency existed when firms operate under monopoly power. Here firms are less incentive to get because of the lower average cost. Here the monopolist creates market failure because they are price maker.

Part C

Sometimes the monopolies are suitable for buyers. Because it gives consistent delivery of some products which are given in up-front cost. The better example is electricity and water supply. Because if they want to build a dam, then monopolies can itself control this considerable expense.