Question

What are the pros and cons of merger activity? Why would the government want to prevent mergers?

Answer 1

Pros of mergers are:

The most common reason corporations enter into mergers and acquisitions is to combine their strength and market share.
Another advantage is Synergy which is the magic power which allows the new entity 's increased value efficiencies and takes the form of enrichment of returns and cost savings.
Scale economies are created by sharing the leading resources and assets of the Union of 2 companies in overall cost reduction offering a competitive advantage, which is possible as a result of increased buying power and longer production runs.
Risk reduction utilizing innovative financial risk management techniques.

Cons of Mergers are:

Loss of experienced staff in leadership positions away from the employees. This form of loss necessarily implies a lack of understanding of the market and, on the other hand, it would be worrying to sell, or will be replaced exclusively at nice value.
M&A may entail exhaustive re-skilling of the small merging firm's employees.
Company will face major challenges thanks to the frictions and internal competition that may occur among the united companies' staff. In some departments there is joint risk of getting surplus employees.
The merging of two companies that do similar activities can mean duplication and over-capacity within the company that may require retrenchments.

A merger is likely to reduce competition and give more market power to the new firm. It will thus be able to increase prices leading to a decline in consumer surplus and could cause inefficiency in the allocation. Monopolies do have a great deal of power. They end up the town's only game. They can also use their market position to block market entrants and thereby allow them to earn a lot of money. So government are going to want to block mergers that damage customer choice.