Endogenous Mergers

The last two decades have witnessed a dramatic increase in the various forms of mergers and acquisitions. Such companies have undertaken many mergers and acquisitions for various reasons and these stem from the economic arguments of efficiency, production and profit gains achieved by merging. The retail sector has seen an extensive range of Mergers which include the merger between Coles and Myer emporium in 1986, and Woolworths Ltd to merge with many other infinitesimally small firms. Such benefits from these mergers may stem from both the economic and financial argument in which we will examine in this essay. The resultant market structure of the retail industry looks to be a duopoly where there are two firms competing for the market share in the retail industry. Such a market structure allows us to study the effects that mergers have on the retail industry by analyzing whether these firms engage in strategic pricing and output behavior or whether the merger results in an increase level of profits. This essay will discuss the various reasons for why mergers occur and rationale behind some of the mergers in the retail industry. Furthermore, an analysis of how a merger occurs will be examined in detailed while considering the effects of some of the recent mergers on the retail industry. Some of the effects include a decrease in the level of competition within the industry causing firms to engage in non cooperative behavior in setting prices, output and profits. Finally, we will be assessing the guidelines that the ACCC uses to determine the merger proposal.

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