Economics 9

In the recent past, the business world has witnessed quite a number of mergers by both small and large firms. This essay seeks to look into the potential cost advantages of these moves. In addition, it looks to explain efficiency of firms in relation to the capital base. Finally, it will seek to explain whether or not these mergers can be based on economies of scope.

            According to Hirschey (2008), mergers and acquisitions often generate cost advantages courtesy of economies of scale. In addition, merging positions firms well to harness additional revenues through increased market share. Moreover, merging enhances the ability of a firm to increase its tax gains. It is therefore apparent that the potential cost advantages accrued by merging firms are not only improved cost efficiency but also value generation and market share increases.

            To say that a national bank with a capital base of 300 billion dollars is likely to be relatively more efficient than either a 30 billion regional bank or a 3 billion state based bank is untrue. The aforementioned is relatively because the costs associated with large firms are often high when compared with those with small capital base.

            Yes, it is true to say that the recent mergers are often predicated on economies of scope. This is relatively because most of these firms merging are keen to stay ahead of competitors by curbing the threat of multinational corporations and be able to position themselves to compete internationally. Mergers often paramount in an industry where companies are striving to remain afloat. Here, an industry will be able to avert impending crisis. Giving that scope, firms will be able to share knowledge and information through increased merging in an industry (Hirschey, 2008).

             

References

Hirschey, M. (2008). Managerial Economics. New York: Cengage Learning.