which companies in the same industry combine-are forbidden under the Clayton Act.when the merger is likely to reduce competition in the industry substantially. Case law and government merger guidelines clarified the meaning of the vague statutory language. The government uses the Heyerdahl-Churchman Index (HHI) to evaluate mergers,” Under these guidelines, industries are divided into three groups: concentrated (HHI below
1000), moderately concentrated (HHI 1000 to 1800), and highly concentrated (HHI above 1800). Mergers in the latter two types of industries will be challenged even in cases where the merging firms involved have small market shares.
Vertical mergers occur when two firms at different stages of the production process come together. In recent years, the courts took a hard line toward vertical mergers. They worried about the potential restriction of competition through exclusive dealings if two independent firms merged. Courts tended to pay relatively little heed to the potential inefficiencies of joint operations in vertical mergers. . A third kind of combination, called conglomerate mergers, joins together unrelated businesses. In a conglomerate merger, a chemical or steel company might buy an oil company. The critics of conglomerates make two points. First, they note that the absolute size of the largest corporations is awesome.
The largest 200 corporations control almost 52.5 trillion of assets. The largest corporations therefore have great economic and political power. Increasingly, many observers worry more about the way that large organizations can buy favors in the political process than about how they abuse their market power. The second point made by the critics of conglomerates is that many of these combinations serve no economic purpose. They are, it is argued, simply a brand of “boardroom poker” to entertain managers bored with supervising their tiresome steel or chemical operations. And, indeed, there is a point here What does the airplane business have in common with meatpacking? Or typewriters with birth-control? Or computer leasing with passenger-bus operations? Conglomerates are not without defenders. Some “economists argue that these mergers bring good modern management to backward firms and that takeovers, like bankruptcy, represent the economy’s way of eliminating deadwood in the economic struggle for survival, But there is no consensus on the merits or demerits of conglomerate mergers. No study has found major gains or costs, so perhaps the best policy is to keep a watchful eye.
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