De la Merced brings to focus important economic aspects that may arise from mergers and acquisitions. The article also highlights the various forms in which regulators may intervene to block mergers that…
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It may so happen that the merged organizations gains at the expense of the consumer. This is where the government chips in, through its antitrust regulations.
The government reserves the right, and rightly so, to intervene and block any merger deal which it feels would reduce competition in the industry and thereby adversely affect the consumers, either by way of high prices or by way of low quality. In some cases, these mergers may lead to less innovation thus indirectly putting consumers at a loss.
Section 7 of the Clayton Act disallows mergers and acquisitions when such transactions may significantly lower competition, or may create a monopoly, or may lead to formation of cartels (Federal Trade Commission 2011). Simply put, the purpose of antitrust legislations is to enforce laws that promote competitive markets.
These laws thus ensure efficient allocation of resources in a free market and prevent market failures. The focal point of antitrust economics is competition (Scheffman 2002). It is competition that is at the heart of many important business decisions and to a large extent determines the firms pricing strategies and tactics.
The Federal Trade Commission’s Bureau of Competition, along with the Bureau of Economics is entrusted with the enforcement of such antitrust laws in the United States. The FTC and Department of Justice review scores of merger filings every year of which 95 percent have no competitive issues (Federal Trade Commission 2011).
The first category consists of merger proposals wherein the competitive concerns can be resolved by mutual consent of the parties concerned. The revised merger proposal, so arrived after negotiations, retains the beneficial aspects of the deal and discards the threat. The federal regulators negotiated a settlement in the proposed merger deal of Comcast and NBC Universal. As a part of the revised deal, Comcast agreed to give up
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Antitrust laws can be defined as acts adopted by congress to ban or hinder business practices considered being monopolistic or restraining interstate commerce. A clear example is the Sherman antitrust Act of 1890 between states or foreign countries.
Another aspect is supervision of mergers as well as acquisitions of big companies and this includes some joint ventures. Transactions that are regarded as a threat to the competitive procedure can be banned or recommended subjects to “remedies” for instance an requirement to divest part of combined business or to provide licenses.
These laws are designed to enhance fairly distributed competition between firms, while encouraging production and supply of quality products and services at affordable prices. In other words, the laws account for public welfare by ensuring that the public is not exploited.
Though most of the modern economies exhibit laissez faire principles, but still they abide by the norms of mixed economic system. In the mixed economies, the government checks the power of the private enterprises that may threat the social welfare of the individuals.
To effectuate that purpose, McCarran-Ferguson provides two separate exemptions from federal preemption, a general exemption for "any law enacted by any state for the purpose of regulating the business of insurance," and a provision exempting insurance companies from federal antitrust laws in states which regulate "the business of insurance." McCarran-Ferguson Act, section 1012(b).
The law is meant to facilitate healthy commercial competition that keeps American business and the American economy vibrant. When more companies are able to compete within a given industry, there will arguably be more jobs, more stable pricing that keeps inflation in check, and greater innovation that keeps American business on the cutting edge.
By bundling their internet explorer with the operating system, Microsoft gained victory in the browser sector as every operating system had internet explorer software (Evans, 2002). Besides, Microsoft license agreement with
Google was accused of competing unfairly by introducing applications that were only compatible with their products. Google was also accused of colluding with Internet Service Providers. Most providers were proving the search engine as the default application, something that was considered as favoritism. The accusations did not go well with some of the industry players who felt that Google was engaging in unfair competition.
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