Expansion and Mergers

Expansion and Mergers

Introduction

Mergers are a great way to increase profits, gain access to new markets or eliminate competition. To avoid the creation of monopolies, the government closely regulates mergers and acquisitions. It plays has a vital role in the economy of a nation. Self expansion is an alternative to merging with another organization but it comes with its own specific risks and issues. This paper takes a closer look at mergers, the role of the government, self expansion and implications of goals with respect to maximizing profits or looking out for stockholders.

Discussion

A merger takes place when a firm assumes responsibility of all the assists and liabilities of another company. The firm that has acquired this responsibility maintains its identity, where as the acquired firm ceases to exist as an individual identity, existing only through the identity of its acquirer. A majority shareholder vote is required to approve a merger. Mergers are considered methods of realizing possible economic gain (Ohen, 2002). These two forms are worth more when they are combined, as compared to their individual worth. Benefits of mergers include the combination of resources, tax advantages and overcoming inefficiencies (Buono, 2007). Through a merger, the acquirer obtains rights over products and services. This can increase the firms market worth and power over competitors (Ohen, 2002). It can open up new markets and create new opportunities for growth. With the obvious advantages that come with mergers, companies can exploit competitor weaknesses. The eradication of competition may be beneficial for a business, but it is bad news for consumers. Lack of competition means that the company has the right to regulate prices and the consumer will have no other alternative. To make sure such things do not take place, government plays a key part in regulating mergers (Buono, 2007).

Government involvement or overlooking of possible mergers is a must. The government is tasked with safety of its citizens. Safety does not necessarily mean physical protection. The government is also responsible for economic stability and safeguarding the end consumer's rights. If corporations succeed in taking over all forms of competition, they are effectively creating monopolies. Monopolies do not allocate their resources efficiently. Governments respond to monopolies by the enforcement of antitrust laws and proper regulation of mergers that effectively limit the possibility of a monopoly being formed and harming free market economies (Willett & Lehman, 2006).

Governments can interfere in the market for a number of reasons. This may involve the correction of market failures or to distribute wealth and income in a more equitable manner. Overall, government involvement in market process is an attempt to improve the performance of the economy (Roper & Zin, 2007). By regulating mergers and acquisitions, governments can make sure the economy does not stagnate.

By implementing numerous policies and acts, the government is able to act against things like price fixing, which can be deemed illegal if done by market leader cohorts. Prices vary based on numerous principles; comprising of supply, demand and ...