Economics assignment Example | Topics and Well Written Essays - 500 words - 1

Economics - Assignment ExampleVertical mergers occur when a firm that produces an intermediate reaping merges with another firm that produces a final product/good whose production requires the intermediate good. Time Warner, Prudential Financial and Brook Bond Lipton India Ltd are examples of vertical, pile up and horizontal mergers respectively (Layne 69).Business organizations form mergers because of various reasons. The main ones include the aspect of reducing competition, reducing cost or switching to cost conditions in order to get economies of scope, to increase profitability and to increase market share of particular products just to mention a few (Layne 74). However, it is crucial to note that mergers may not reduce competition incase cournot oligopoly firms exists.In case of a horizontal merger whereby two firms merge with one being a execrable cost firm than the other one, the Cournot ideal formed results to cost of one firm being C1=1 while that of the other firm is C 2=4. This is the case because lead (P)=10-Q whereby P and Q are price and quantity respectively. Firms that do not merge face high production cost, hence produce less.The set up model is a Cournot model because non-merged firms face higher production cost than the merge, thus have low productivity. However, this is applicable in the case of identical firms. The model similarly increases production, though it reduces consumer welfare. If the Bertrand model would be applied, firm 2 would have produced at all because of high production cost.The main gains of mergers include the elements of high profitability because of make more sales and the lower competition that is triggered by the existence of one producer (Layne 76). Other benefits include reducing production cost as a result of switching to cost conditions, hence getting economies of scope as well as increasing the market share of particular products. The main disadvantages or losses of mergers include the aspects of some firm s