One key element in a market economy is competition. In Competitive oligopolies, non-price competition get preferred so as to avoid price wars. Any price reduction might achieve strategic benefits, like deterring entry, gaining market share this, however, impose the danger in which the rivals might simply reduce prices of similar commodity in response.
Because of competition, there exists incessant search for the least cost, greatest profit method of production. Should resources move freely in markets, this will imply that labor and raw materials on the same note move from one firm to another, implying that each firm is continually looking for means and ways to advance the productivity of their capital, as well. So in a market economy, developments of a new technology are persistently encouraged. Consequently, leading to increases rates of investment, and helping promote the economic growth and employment.
Oligopolistic Competition sees to it that consumers have a diversity of goods and services to choose. Because New products will frequently come up, thereby adding to choice, and better standards of living. In conjunction to the aforementioned, it helps foster lower prices.
A merger in an oligopoly is stimulates competition. And as seen in the above-mentioned statements, this is healthy for both customers and the firms. “Dynamic efficiency is almost impossible to realize in a perfectly competitive market” (Economic Online 2012). Because firms have no profits in the long run. Therefore, they have less or rather no money to aid in innovate and develop the new technology. Furthermore, having a perfect knowledge of other firms and consumers makes sure that all new development would be copied by others, and competitive edge extended from it will get lost. Though a merger such as the one mentioned in the running head, has advantages such as the following.
Network Economies, inside some industries, firms have the need to offer a national network. Meaning that there exist highly significant economies of scale. National network may simply imply the most proficient number of firms in an industry merge to form one. “As in home depot merger, cuts out duplication, and thereby create a single super-network” (Bean talk, 2012). And to the customers this merger means a bigger network and a better coverage, although reducing the number of sites and stations– that is good for the cost reduction in conjunction to being good for the environment.”
Research and development. It is extremely beneficial to capitalize in Development and research so as to come up with new technology and products. Home depot merger will enable the firm to be additionally profitable and have greater funds for conducting research and in the development. This is mostly the reason why most health centers merge during a drug research.
Another advantage of the home depot merger is that it will help the firms avoid Duplication. In this case, it makes sense to have a merger so as to avoid duplication. Take an example of two bus companies, they might be in completion over the same stretch of roads. “Consumers might benefit from rather single firm charging lower costs, so by merging, only one firm operates at lower cost” (Tejvan, 2012). In addition to the reduced cost of operation and the cost charged to the customers avoiding, duplication has numerous environmental benefits and, in addition to reducing congestion and, accidents.