Podcast
Questions and Answers
Explain how a merger between two large firms in a market dominated by only five firms could potentially lead to reduced innovation within the newly formed company?
Explain how a merger between two large firms in a market dominated by only five firms could potentially lead to reduced innovation within the newly formed company?
With less competition, the merged business faces less pressure to constantly develop and introduce new products or ideas. They may become complacent due to their increased market share.
Describe a condition that industry regulators might impose on a merger to ensure it does not significantly harm the public interest.
Describe a condition that industry regulators might impose on a merger to ensure it does not significantly harm the public interest.
Regulators might require the business to sell off some assets before the merger can proceed. This helps maintain some level of competition in the market.
Why would competition authorities from different countries (e.g., South Africa and the UK) both investigate a takeover like the one between Lonmin and Sibanye-Stillwater?
Why would competition authorities from different countries (e.g., South Africa and the UK) both investigate a takeover like the one between Lonmin and Sibanye-Stillwater?
Competition authorities in multiple countries investigate because the takeover could affect competition in global markets, not just the local market of either company.
Beyond increasing prices, what is another potential negative outcome for consumers if a business starts to dominate the market due to reduced competition from mergers?
Beyond increasing prices, what is another potential negative outcome for consumers if a business starts to dominate the market due to reduced competition from mergers?
How could a merger that reduces competition still be approved by regulators, even if it initially raises concerns about the public's best interest?
How could a merger that reduces competition still be approved by regulators, even if it initially raises concerns about the public's best interest?
Flashcards
Cross-border M&A
Cross-border M&A
Combining two or more companies from different countries into a single entity.
Market Domination
Market Domination
A situation where a small number of firms control a large portion of the market.
Innovation
Innovation
The act of developing new and original products, processes, or ideas.
Industry Regulators
Industry Regulators
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Asset Sell-Off
Asset Sell-Off
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Study Notes
- Cross-border mergers and acquisitions can be motivated by a desire to lessen market competition.
- A market dominated by five major firms consolidating into four post-merger reduces competition.
- Reduced competition can lead to market dominance for a business.
- Businesses may try to increase prices.
- Innovation may be stifled.
- Boeing's takeover of Embraer, a Brazilian rival, exemplifies a move that is expected to reduce market competition.
- Industry regulators often scrutinize such acquisitions.
- Mergers or acquisitions that are against the public interest can be blocked.
- Conditions may be imposed for a merger to proceed.
- Businesses might have to sell off assets before a merger or takeover can proceed.
- In 2018, Sibanye-Stillwater, a South African miner, acquired Lonmin, another South African miner.
- Sibanye is South Africa's largest individual gold producer and ranks among the world's top 10 gold producers.
- Sibanye is the third-largest producer of both palladium and platinum.
- Competition authorities in South Africa and the UK expressed intentions to investigate the Lonmin takeover.
- Concerns arose that the takeover would excessively diminish competition within the industry.
- If the Sibanye deal is approved, it would rise to become the world's second-largest platinum producer.
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Description
Cross-border mergers and acquisitions can be used to reduce market competition. A market with fewer firms reduces competition. Regulators often scrutinize such acquisitions and can block deals or impose conditions if they are against the public interest.
