Economic: Monopoly and Vertical Merger Essay

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ECO 365 WEEK 4 Discussion Question
2. What are the differences among horizontal, vertical, and conglomerate mergers? Provide real-world examples of each type of merger. What policy do you think the US should follow toward mergers? Why?
Horizontal mergers take place between companies in the same industry. These companies are rivals who sell the same goods or services. When a merger takes place, a rival is eliminated and potential for gains become higher. A vertical merger is one in which a firm or company combines with a supplier or distributor. For example, if a car making firm is receiving chassis from two suppliers and decides to acquire them, it is a vertical merger. On the other hand conglomerate mergers are those between firms that
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Government intervention takes place when there is necessity to support the economic fabric of the nation. For example, when the US government provided bailout packages to investment banks the objective was to rescue the banking system of the United States. The fiscal intervention has the objectives of reducing unemployment, ensuring growth, and controlling inflation. An example is a fiscal stimulus package that reduces unemployment. The direct goal of taxation is to finance government programs, reduce government deficit, and to pay off the debts of the government. Taxation is reduced to stimulate the economy. A real-world example is that currently President Obama has announced that the effective corporate tax rate will be cut to 28% and for manufacturers the effective rate will be 25%. The goal of this policy is to encourage businesses to invest more and become more competitive. Regulations are imposed to control unacceptable economic behavior. For example, around 2000 there were a number of large accounting scandals that shook the confidence of investors. To regain the confidence of investors, the Sarbanes Oxley Act 2002 was passed. This regulation sets higher standards for Public Company Boards, management, and public auditors. The goal of this act was to restore investor confidence in public companies. The goal was also to bring greater transparency and accountability in the management of public companies.

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