Why do governments intervene in takeovers and mergers

Among other things, the FTC looks at the dynamics of horizontal mergers, unilateral effects, vertical mergers and potential competition mergers. A horizontal merger refers to a merger within the same industry.

If a merger would set up the industry so that it would either create a monopoly or reduce competition, the FTC could legally stop the merger. This sometimes happens when a large company seeks to acquire a small company, thereby resulting in there being only two dominant firms in the industry. The risk is that the two companies could collude to raise their prices without regard to normal competition.

The FTC may also try to halt mergers where they suspect there could be unilateral effects whereby a merger could eliminate beneficial competition. The FTC did just that in when General Electric attempted to merge with a rival firm that manufactured non-destructive testing equipment.

General Electric had to agree to divest its non-destructive testing equipment business before the merger could proceed. A vertical merger is a merger between a buyer and a seller that can set up cost-savings and commercial synergies and the cost savings can be passed along to the consumer. The FTC also monitors dominant firms, particularly in the pharmaceutical industry, when new, smaller companies enter the market to allow the new companies to offer fresh competition.

Such practices as price-fixing, bid-rigging, monopolies, and anti-competitive mergers and acquisitions can be controlled with the watchful eye of the government through criminal and civil enforcement. Subscribe to emails. Home Explore Login Signup. Successfully reported this slideshow. We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads.

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Some features of this site may not work without it. Creator Thomas, Ashley Anne. Description Thesis Ph. Since Bretton Woods, Western leaders have worked to establish an international order founded on economic liberalism and free trade.

Yet, in recent years the very same states that helped to found the liberal economic order are acting in a way that seems to fundamentally undermine it by implementing or encouraging the creation of domestic barriers to cross-border mergers and acquisitions in industries they deem vital to national security.

Traditional interest group and domestic politics explanations cannot account for this behavior, because states are often intervening against the parochial interests of companies and other domestic groups on the behalf of national interest and security.

It is hypothesized that such behavior is motivated by the desire to increase the relative power and prestige of the state through non-military means in response to either economic nationalism, or pressing geo-strategic concerns.

The exact form that intervention takes, and the motivations behind it, are determined to vary with both the relationship of the countries involved, and the exact nature of the threat posed by the transaction in question.