Question

Could someone take notes for me with explantation with these paragraph. Thank you inadvance.

cluding oligopolyf of their effects 's long-run aveta uction are a wel E.com Econoward or her the plaustries beca Economien. RAC) slopes operation at eitherent industries be dries because only larges ceed with a larger se barrier to entry in benefits of these ecc es. Industries number of larys ests of production Microeconomic Analysis These factors apply to all imperfectly competitive firms, includin Well now describe each of these factors and provide examples of th Economies of Scale Economies of scale exist when a firm's cost curve (LRA) slopes downward or when lower costs of produ ated with a larger scale of operation at either the plant or the firm los of scale can act as a barrier to entry in different industries bee finns can achieve the cost reduction benefits of these economies semifiant economies of scale tend to be dominated by a small nur firms. Even though these large-scale firms may have lower costs there is no guarantee they will pass these low costs on to consumer of lower prices, given the lack of entry into the industry. Therefore, mother simply use economies of scale as part of their competitive strategy to economic profits. As we discuss later in this chapter, this trade-off beh costs from large-scale production and the market power of these firms is dilemmas of US antitrust policy. re, managers Day voy to earn positive off between lowe firms is one of the ealize economie in the United computer sys Mergers are one means of achieving the necessary size to realize of scale. From 1990 to 2005 there were nearly 3,800 bank mergers in the States involving $3.6 trillion in assets. Several of the largest bank merstore tory occurred in 1998, including NationsBank-Bank of America, Banc One Chicago NBD, and Norwest-Wells Fargo Banks rely on extensive computer tems with substantial fixed costs and relatively small variable costs, so that computing and maintenance costs increase relatively little as transactions un increase. Greater bank size can result in increased employee specialization and spreading of advertising costs. Mergers can eliminate redundancies in many hard office functions. Mergers can also increase market power and the ability to bola loan interest rates and fees above competitive levels. Banking industry studies have indicated that mergers have both increased mar ket power and resulted in cost reductions. Studies during the 1980s and 1990 found evidence of increased profit efficiency and better risk diversification but no evidence of significant cost efficiency gains. Several more recent studies found evi- dence of downward pressure on rates paid on deposits after mergers. However, there may be cost efficiency gains, particularly for larger banks. Some studies have also suggested there are efficiency gains at incumbent nonmerging banks who respond to the news of a merger by increasing their own efficiency to remain viable competitors. In 2011 pharmacy-benefit manager Express Scripts Inc. paid $29.1 billion to acquire Medco Health Solutions Inc.10 These companies, which typically work for employers and health plans, negotiate favorable prices with pharmaceutical com panies and drugstores. Medco and Express claimed that the merger would approximately $1 billion in costs. This merger is consistent with trends in health care industry where medical providers and insurers have been merging to reduce expenses and to gain market power. At least 60 mergers in major law firms occurred in the United States and abro 2011. This was the highest level of mergers since 2008 and represented a 54 perc increase from 2010. Mergers offered firms, who had been unable to raise rates ing the recession, the ability to lower costs through ready-made regional States and abroad in 54 percent able to raise rates dur- le regional offices "This discussion is based on Steven Pillott. "The Bankin ed. James Brock, 12hd end

Answer 1

Economies of scale is a phenomenon where the total cost of the company or an enterprise is reduced due to expansion of the business i.e., if a business expands to a larger scale of operation its costs are reduced. This can act as a barrier to small scale firms because they need to face the competition with larger firms whose costs are already less as compared to the new entrants. mergers help the company to reduce cost by economies of scale.

If a company is large it has the market power with which it can restrict smaller firms to enter. This is main dilemma of US antitrust policy, which includes the tradeoff between reduced cost or market power.

In US from 1990 to 2005 many mergers took place in banking sector, major banks were also merged into a larger entity. Banks generally have large fixed cost of computer systems and small variable cost and therefore, it can handle large volumes of data of the merged banks with very low cost, this is an advantage of economies of scale. Other advantages include lack of redundancies, specialisation of employee to the best use of the firm. But this gives them the market power to choose loan interest rates and other rates/ fees above competitive level.

But the empirical results of 1980s to 1990s show that there was no cost reduction but only increased profit efficiency and better risk diversification this also led to fall in the interest rates of the deposits (due to market power)

In 2011, a pharmacy merged with a company of health solutions, both the companies claimed that cost can be reduced by $1 billion. There has been a trend of merging pharma company with health solutions to reduce its expenses and to gain market power

Since 2008 there has been an increase in the number of mergers, In 2010 it has risen by 54%. Mergers were basically done for the firms which were not able to increase interest rates during recession, which also gave them the opportunity to reduce cost by taking ready- made regional offices. Globalisation, consolidation of clients led to huge number of mergers.

In 1950 large number of firms were forced to compete in the market where the economy could support half the number, by 2000, 24 brewers in the industry were forced to compete when the economy could support only 11. The large number of beer factories were successful because of great marketing campaigns and television advertisements. The great advertising techniques helped brewers to increase its sales relative to other regional and local brewers.

There were some huge mergers in Europe and US due to sluggish growth in beer sales in late 2007, due to high competition with wine and other spirits and also rising input cost, such as aluminium, grains, etc. the US merged company miller and coors became a huge competitor of a long dominant A-B Co.

Then in 2008 A-B co. merged to become the world largest brewer this helped in increasing sales in other countries. Then both A-B co and millers and coor introduced new flavours to be competitive in market.

Mergers have begun in the mining industry, the first merger was to merge world’s no. 1and no. 3 miners to a company of higher net worth, where they were rivalry miners. But in November 2008 one of the companies abruptly stopped as it feared that its debt would increase if the merger occurred.

In 2012 rio-tinto wrote down $18.2 billion purchase price of Alcan Inc. that it brought in 2007, there a large merger activity and therefore the aluminium prices fell from 3000 per ton to 1500 per ton in 2009. China’s production of aluminium Increased by more % than it increased in other companies.

Many airline mergers took place in 2012, whereby many companies merged with US airways. However this merger included changes in what to print on the boarding pass, shape of the cups, etc, which increased the cost to $178 billion in the fourth quarter only on technology training to repainting of airplanes.