Conglomerate Mergers Essay Example | Topics and Well Written Essays - 2000 words

Conglomerate Mergers - Essay ExampleIt is r be indeed for such unions to lead any substantial reduction in competition, solely due to the abstruse effect.In a a few(prenominal) cases, especially if the products acquired, complement the acquirers own products, potentially uncomely effects can be set relate to so-called portfolio power2. These are jointures between complementary products, neighbouring products, and unrelated products. A pure conglomerate merger involves the acquisition of products that are not related on the demand or supply side. It is a merger in which there is neither horizontal, vertical, complementary nor neighbourhood relationship between the products.Conglomerate mergers involve portfolio power. When the go market power of a portfolio of brands exceeds the market power of the sum of its parts, a firm is said to have portfolio power. This enables the firm to significantly reduce the competition, as its exercise of market power in the individual markets is such(prenominal) more effective. Portfolio effects could possibly have anti- war-ridden effects, especially where they affect the structure of the market directly. This increases the possibility of unveiling preventing strategies and eliminates the competitive restrictions brought to bear upon it by neighbouring markets3.Frequently, customers get an incentive in the form of reduced transaction cost by purchasing from the portfolio of one supplier, where the suppliers firm has many brands under its control due to a conglomerate merger this is the effect on market structure of conglomerate mergers. If the non - portfolio competitors or competitors who control a few brands do not impose an effective competitive restriction on a firm which has portfolio power, thence competition may be reduced to a large extent4.Large conglomerates will usually instigate customers to purchase a range of their products and the result of a conglomerate merger may be that tie or bundling occurs if c omplementary goods are sold by such firm. This may have adverse effects on competition. Sometimes the predatory behaviour of a conglomerate merger may be feasible when the competition is confined to a small area, thereby enabling firms to face a competitive threat in wonder of a few brands or in a few geographical markets at point of time.5 Finally, conglomerate mergers usually facilitate coordination if the integrate firms opponents in one market are also contenders in some of its other markets6. In the case Tetra Laval v. Commission, The European Commission gave a vox populi whereby it prohibited the merger of Sidel SA and Tetra Laval BV. Sidel was a manufacturer of stretch blow moulding machines used for packaging pellucid foods in plastic. Tetra was a dominant company in the carton-packaging market operating through a related company. Although conglomerate mergers, similar to this one are usually neutral in respect of the competitive aspect, the European Commission was of t he opinion that this merger would only serve to enhance Tetras leverage as in respect of its dominant position in the carton-packaging market. It further, held that this would serve to influence customers using plastic packaging to buy Sidels machines, thereby foreclosing smaller competitors from the market for those machines. The parties to this merger offered to address the Commissions concerns by entering into certain binding commitments that would preclude the merged entity from engaging in anticompetitive conduct. The