Easy writing microeconomic question mergers Consider the fol

Easy writing microeconomic question (mergers)

Consider the following two scenarios:

Scenario 1: As a response to the announcement of the merger between British Airways and American Airlines, Virgin Atlantic - a smaller competitor on the London-US routes - painted its aircrafts with the message “BA/AA no way”.

Scenario 2: In August 1998, BP said it would buy Amoco Co. in the largest industrial merger ever. The announcement pushed up stock prices of most major oil companies. For example, the stock price of Mobil, one of BP’s closest rivals, went up 10 percent in the following two days.

Explain - in not more than 120 words - why and under which circumstances non-merging companies might benefit from a merger in their industry. Relate your argument to the given scenarios.

Solution

Why and When should there be mergers.----- In relation to the scenarios given above.