Mergers and Acquisitions: When Is the Consumer Harmed?
http://www.wsj.com/articles/merger-deals-set-monthly-record-even-as-election-looms-1477614934
According to the Wall Street Journal, the month of October was a busy one for corporate mergers and acquisitions, with a record number of agreements between companies to that end. Many of the proposed mergers (especially the bigger ones) have been challenged by regulators, and will probably not go through. Mergers and acquisitions are a fairly polarizing subject: their proponents argue that mergers benefit companies by increasing efficiency and sales, thus resulting in greater profits for the company and cheaper products for consumers; meanwhile, their detractors argue that they are anti-competitive in nature, inevitably resulting in decreased power and higher prices for consumers. An analysis of an imaginary market represented by a directed graph, shows us that whether or not a merger increases or decreases the power of the consumer depends on the specific type of merger in question.
Imagine a market consisting of nodes representing actors (corporations and people), connected by directed edges from sellers to buyers. The edges are strong if the buyer actually is a customer, and weak if the buyer is only a potential customer. From this diagram follow two commonly used categories of merger: vertical, when a seller absorbs a supplier, thus reducing production costs; or horizontal, when a seller absorbs another seller who is not a supplier, thus increasing market share. It is obvious that each type of merger increases the seller’s power in the market (otherwise, why merge at all?). However, they do so in different ways. Vertical mergers allow the seller to offer a cheaper product whilst preserving the total number of sellers in the market, and thus increase the seller’s power at the expense of competitors. Horizontal mergers remove competition, reducing for each customer the number of potential sellers to chose from – increasing the seller’s power at the expense of its customers.