Theory question 107
Business CombinationsCommerce 2 (answer five questions)
(a) What is a business merger?
(b) Explain the reasons why some businesses merge
(c) Give three disadvantages of business merger.
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(a) A merger (amalgamation) is the joining of two or more independent firms to form one larger firm under one management and ownership.
(b) Any five explained: to enjoy economies of large-scale production and lower costs; to reduce or eliminate competition; to raise more capital for expansion; to secure supplies of raw materials (backward integration) or outlets (forward integration); to diversify and spread risk; to survive economic recession or avoid liquidation; to pool skills, technology and management; to gain a larger market share and control prices.
(c) Any three: may create a monopoly that exploits consumers with high prices; loss of jobs as duplicate posts are cut; firm may become too large to manage efficiently (diseconomies of scale); loss of identity and goodwill of the merged firms; conflicts between managements; less choice for consumers.
Distinguish clearly between reasons and disadvantages.