Mergers happen when two businesses join together to create a single, unified company. Business owners may enter into merger negotiations for a variety of reasons, with mergers generally happening between large and small companies. A small, struggling business might become absorbed by a large conglomerate. Two large companies may join forces to become stronger.
The main benefit of mergers to the public are:
1. Economies of scale. This occurs when a larger firm with increased output can reduce average costs. Lower average costs enable lower prices for consumers.
2. International competition. Mergers can help firms deal with the threat of multinationals and compete on an international scale. This is increasingly important in an era of global markets.
3. Mergers may allow greater investment in R&D This is because the new firm will have more profit which can be used to finance risky investment. This can lead to a better quality of goods for consumers.
4. Greater efficiency. Redundancies can be merited if they can be employed more efficiently. It may lead to temporary job losses, but overall productivity should rise.
5. Protect an industry from closing. Mergers may be beneficial in a declining industry where firms are struggling to stay afloat.
6. Diversification. In a conglomerate merger, two firms in different industries merge. Here the benefit could be sharing knowledge which might be applicable to the different industry.