In 1995 the US Justice Department sued to block a merger be

. In 1995 the U.S. Justice Department sued to block a merger between Microsoft and Intuit, the producer of the nation\'s best-selling business software. The Justice Department argued that the merger would lessen competition and raise prices of business software. Is there an economic argument that the merger might actually result in lower prices? Explain.

Solution

If the merger is in between two companies who are dealing in identical product. For example merger of HP and Compaq is an example of horizontal merger. In case of horizontal Merger the merged organisation is having a larger market share hence increased market power . It also increases the Concentration rato of the industry. Hence, industry move towards monopoly.

The merged firm is having market power hence it will influence the market price in its favor. Thus, consumers will be required to higher price for the product.

When two firms are merging and one of the firm is supplier of some goods or services to another firm it is a case of vertical merger. Here, the Average Cost of production will decline due to economies of scale. Hence the merger will reduce the cost per unit to the merged firm.

Thus, the selling price of the product will be lower.

Under Vertical Merger due to economies of scale the consumers get benefitted as they are offered lower price.

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