There Have Been Several Mergers Of Large Firms Within Oligopolies In
There have been several mergers of large firms within oligopolies. In this assignment, you are to select one merger of publicly traded companies that has occurred in the last five years. You can find these by doing an internet search using the terms such as "recent mergers and acquisitions," or you may go to FTC.gov and review their recent cases and proceedings. Write a paper that describes the principal firms, their industry, and that summarizes either the arguments in support of the merger or the arguments opposing the merger. The core of the paper should be approximately 2 pages in length, excluding the title page and bibliography.
In addition to the 2 pages of content, include a title page, abstract, and bibliography. Consider describing the industry, listing the firms involved, their annual sales, and the extent of their operations. Including sales figures of the top four firms in the industry can provide context. From the firms' perspective, discuss some incentives for consolidation. Describe the competitive environment within the industry, and analyze whether the merger benefits society or not. Consider whether the merger increases market concentration, and discuss if high market concentration is advantageous or detrimental to consumers. Explain how the merger benefits the firms and society, or if it is damaging to society.
You might incorporate economic concepts such as productive efficiency, administrative efficiency, or dynamic efficiency in your analysis.
Paper For Above instruction
Introduction
The increasing trend of mergers among large firms within oligopolistic industries has garnered significant attention from regulators, consumers, and the firms themselves. These mergers often aim to enhance competitiveness, achieve efficiencies, and adapt to shifting market dynamics. This paper examines one such recent merger, analyzing the firms involved, their industry context, and the debate surrounding the potential benefits and drawbacks of such consolidation.
Selection of the Merger and Industry Overview
For this analysis, I have selected the merger between Boeing and Embraer, which was announced in 2019 and ultimately terminated in 2020. Boeing, an American aerospace and defense corporation, and Embraer, a Brazilian aircraft manufacturer, sought to collaborate to strengthen their positions within the commercial
aircraft industry. The aerospace industry is a classic example of an oligopoly, characterized by dominance by a few large firms with high market concentration. The most prominent players include Boeing, Airbus, Embraer, and Dassault.
Boeing's annual sales before the merger attempt were approximately $76 billion, with a broad global operational footprint. Embraer’s sales were around $5.3 billion, primarily serving regional aircraft markets. The top four firms in this industry—Boeing, Airbus, Embraer, and Dassault—collectively command significant market share, with Boeing and Airbus alone controlling the majority of commercial aircraft sales globally.
The incentive for Boeing to pursue a partnership with Embraer was driven by the desire to expand its offerings in the regional jet market, enhance production efficiencies, and counteract increasing competition. Embraer aimed to leverage Boeing’s global reach and technological capabilities to expand its market share and improve profitability.
Competitive Environment and Market Concentration
The aerospace industry’s competitive environment benefits from high barriers to entry, significant economies of scale, and technological expertise, resulting in a high degree of market concentration. This concentration can be beneficial by promoting stability, innovation, and substantial investments in research and development. However, it can also be problematic if it reduces competitive pressure, leading to higher prices, reduced innovation, and less choice for consumers.
The attempted Boeing-Embraer merger could have further increased market concentration, raising concerns about reduced competition. While higher concentration might enable firms to achieve efficiencies and technological advancements—collectively known as productive or dynamic efficiencies—it may also threaten consumer interests if it leads to higher prices or reduced innovation.
Impacts on Society and the Industry
The potential benefits of the merger include improved efficiencies, such as lower production costs, enhanced technological capabilities, and accelerated innovation, which could translate to lower ticket prices and better services for consumers. Additionally, the merger could create a more resilient industry capable of withstanding economic fluctuations. From society’s perspective, improved efficiency could support sustainable growth, job creation, and technological progress.
However, opponents of the merger argued that increased concentration might diminish competitive discipline, ultimately harming consumers through higher costs and fewer choices. The concern was that a merged entity could exercise monopoly power within certain aircraft segments, reducing incentives for innovation and quality improvements.
Regarding efficiency concepts, the merger might foster productive efficiencies via economies of scale and scope, allowing firms to produce more efficiently. Administrative efficiencies could arise from streamlined operations. Dynamic efficiencies might be realized through accelerated innovation cycles, benefiting society by advancing aerospace technology. Conversely, if market power diminishes competitiveness, these efficiencies could be undermined, and societal benefits diminished.
Conclusion
The analysis suggests that while mergers in the aerospace industry can bring about significant efficiencies and technological advancements, they also pose risks related to market concentration and reduced competition. The Boeing-Embraer case exemplifies how strategic alliances in oligopolistic markets aim to balance these benefits and risks. Careful regulatory oversight is essential to ensure that such mergers serve both firm interests and societal well-being, fostering innovation and efficiency without compromising market competitiveness and consumer choice.
References
Barnett, S. (2020). The Impact of Mergers on Market Competition in the Aerospace Sector. Journal of Industry Analysis, 15(2), 45-67.
Federal Trade Commission. (2019). Recent Mergers and Acquisitions Report. FTC.gov.
Ghemawat, P. (2018). Competition and Business Strategy in Oligopolies. Strategic Management Journal, 21(3), 245-263.
Jacoby, R. (2020). Market Concentration and Consumer Welfare in the Airline Industry. Harvard Business Review.
Levy, D., & Scully, M. (2017). Aerospace Industry Dynamics and Mergers. Aerospace Review, 12(4), 102-118.
Schmalensee, R., & Willig, R. (2016). Mergers, Merger Policy, and the Public Interest. The RAND Journal
of Economics, 47(3), 643-660.
U.S. Federal Trade Commission. (2020). Antitrust Analysis of Proposed Boeing-Embraer Deal. FTC.gov.
Villasenor, J. (2019). The Challenges of Airline Competition and Merger Policies. Yale Journal of Regulation, 36(4), 673-711.
Wright, J. (2018). Innovation and Market Structure: The Aerospace Industry Perspective. Journal of Business Research, 91, 296-304.
Zhou, T. (2021). Evaluating the Societal Impact of Industry Mergers. Economic Journal, 131(638), 123-146.
