Purchase Solution

merge the businesses

Not what you're looking for?

Ask Custom Question

Among the roadside stores of a middle class suburb, there used to be two drugstores, approximately the same size. One was on the side of the main road where traffic was the busiest in the morning; the other was on the opposite side of the road. They were about 50 meters apart. After many years of competing, the two businesses were merged and the shop on the busy-morning side of the road was shut down. Why did the owners of these businesses decide to do this? Could this decision be explained by the concept of economies of scale?'

(a) A list of reasons (based on micro economic theory) why the owners decided to merge the businesses (or close one and retain the other). The reasons should centre around costs structures such as average, fixed, variable and total costs and other relevant factors

(b) Arguments for and against whether the merge decision could be explained by the concept of economies of scale.

Attachments
Purchase this Solution
Solution Summary

A list of reasons (based on micro economic theory) why the owners decided to merge the businesses (or close one and retain the other). The reasons should centre around costs structures such as average, fixed, variable and total costs and other relevant factors.

Solution Preview

Part A:

A list of reasons (based on micro economic theory) why the owners decided to merge the businesses (or close one and retain the other). The reasons should centre around costs structures such as average, fixed, variable and total costs and other relevant factors.

Solution:

When the two businesses were operating on a standalone basis, they were competing with each other in the marketplace. Thus, they were both sharing the revenues from the sale of pharmaceutical products in the local marketplace. The primary reason for merging the two businesses or in other words, closing one store and retaining the other was to combine the sales and revenues of the two individual businesses and take advantage of numerous factors arising out of increase in revenue, profitability and size of the business. In other words, the firms merged together to enjoy numerous advantages which arises due to the large scale operations of the combined entity, as outlined below.

First of all, the merged entity, which was certainly much larger in terms of size, revenue and operations than the standalone entities, created a sort of monopoly for the drugstore in the area as consolidation in number of players took place. Even though details about the number of other drugstores in the area is not provided, it may be presumed that these two drugstores were the leading drugsellers on the road and by merging together, they offer no choice to the customer but to buy the drugs from them. The merger provided the company greater control over the pricing of the products in the local area and also created barriers to entry for ...

Solution provided by:
Sandeep Bardia, MBA
Education
  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
Recent Feedback
  • "Thank you. "
  • "Thank you"
  • "Thank you. I got 20/20 last week for my discussion you help me out with."
  • "Thank you. Great Job. "
  • "Thank you. Great Job. "
Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Organizational Theory and design: After mergers and growth

    The issues that arose from that were poor morale at the New York bank and very little experience dealing with the areas businesses. They lost many customers and as a result, had to let some tellers go.

  • Purchasing Unrelated Business

    Undoubtedly, the culture of the purchasing company significantly differs from that of the purchased company which can jeopardize integration if the purchasing company chooses to merge its acquisition into its existing operations.

  • What are the differences among horizontal, vertical, and conglomerate mergers?

    Further it endeavors to disallow some unethical practices of businesses that transgress on the rights of other businesses or consumers. The US government hopes to use the law to prevent cartels from forming.

  • Decision to purchase a manufacturing company

    In this case, the merger would be a vertical merger if the two companies from different points in the commerce cycle merge, like a supplier and a manufacturer, or it would be a conglomerate merge if the businesses were unrelated.

  • Affordable Health Care Act

    One of those provisions includes SHOP - the Small Business Health Options Program. SHOP is a program that allows small businesses to merge together for affordable care provisions only, into a pool.

  • Time Warner Case Study

    Why did Time and Warner Brothers decide to merge and who benefited more from it? Time's CEO, Munroe, was looking for a company to merge, and Warner Brothers was one of the prospects.

  • Beta

    If you mean merge businesses which fluctuate in stock price with those who don't, the answer is no.

  • Creating Mail Merge using MS-Access

    390408 Creating Mail Merge using MS-Access Create a Mail Merge using Microsoft Access as the record source. The Mail Merge document should be professionally formatted and needs to include the following: 1. A logo for Front Row Video 2.

  • Algorithm for insertion and merge sort

    238591 Algorithm for insertion and merge sort Suppose that we compare the insertion sort method with the merge sort method in the same computer.

View More Related Solutions