The Core Concepts Competition is at the core of the success or failure of firms.
Guide to Antitrust Laws Competitive Effects The law bars mergers when the effect "may be substantially to lessen competition or to tend to create a monopoly. Horizontal Mergers There are two ways that a merger between competitors can lessen competition and harm consumers: In either case, consumers may face higher prices, lower quality, reduced service, or fewer choices as a result of the merger.
Coordinated Interaction A horizontal merger eliminates a competitor, and may change the competitive environment so that the remaining firms could or could more easily coordinate on price, output, capacity, or other dimension of competition. As a starting point, the agencies look to market concentration as a measure of the number of competitors and their relative size.
Mergers occurring in industries with high shares in at least one market usually require additional analysis. Market shares may be based on dollar sales, units sold, capacity, or other measures that reflect the competitive impact of each firm in the market.
The overall level of concentration in a market is measured by the Herfindahl-Hirschman Index HHIwhich is the sum of the squares of the market shares of all participants.
The larger the market shares of the merging firms, and the higher the market concentration after the merger, the more disposed are the agencies to require additional analysis into the likely effects of the proposed merger.
During a merger investigation, the agency seeks to identify those mergers that are likely either to increase the likelihood of coordination among firms in the relevant market when no coordination existed prior to the merger, or to increase the likelihood that any existing coordinated interaction among the remaining firms would be more successful, complete, or sustainable.
Successful coordination typically requires competitors to: Firms may prefer to cooperate tacitly rather than explicitly because tacit agreements are more difficult to detect, and some explicit agreements may be subject to criminal prosecution.
The FTC challenged a merger between the makers of premium rum. The maker of Malibu Rum, accounting for 8 percent of market sales, sought to buy the maker of Captain Morgan's rums, with a 33 percent market share.
The leading premium rum supplier controlled 54 percent of sales. Post-merger, two firms would control about 95 percent of sales. The Commission challenged the merger, claiming that the combination would increase the likelihood that the two remaining firms could coordinate to raise prices.
Although a small competitor, the buyer had imposed a significant competitive constraint on the two larger firms and would no longer play that role after the merger. To settle claims that the merger was illegal, the buyer agreed to divest its rum business.
Unilateral Effects A merger may also create the opportunity for a unilateral anticompetitive effect. But a merger may also allow a unilateral price increase in markets where the merging firms sell products that customers believe are particularly close substitutes.
After the merger, the merged firm may be able to raise prices profitably without losing many sales. Such a price increase will be profitable for the merged firm if a sufficient portion of customers would switch between its products rather than switch to products of other firms, and other firms cannot reposition their products to entice customers away.
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This strategy was establishes cost advantage and give the company advantage over its competitors in terms of lower cost (porter, ), in the mean while company focused on producing smart cars that were not price sensitive and offered the functionality of traditional ford cars.
sustainable competitive advantages for companies, as well as being the most important driver of job creation and per-capita income growth for the economy. This link has been established in McKinsey Global Institute’s extensive country.
The essential complement to the pathbreaking book Competitive Strategy, Michael E. Porter's Competitive Advantage explores the underpinnings of competitive advantage in the individual firm. Competitive Advantage introduces a whole new way of understanding what a firm does.
Porter's groundbreaking concept of the value chain disaggregates a company into "activities," or the discrete .