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Merging Firms

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Imagine one firm buys another firm. What issues might arise as they attempt to merge their respective performance management systems? What might be the risks for the combined firm? How could the firm mitigate these risks?

The book I am using is:
Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. (2009). Economics of strategy. (Fifth ed.). Hoboken, NJ: Wiley.

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What issues might arise as they attempt to merge their respective performance management systems?

Some of the critical issues that might arise when the two firms attempt to merge their performance systems is that some of the metrics used from one firm may not be effective for employees from the other firm. Further, managers from one firm may do a poor job in assessing employees from the other firm. The performance integration may take place without integration of compensation, development, internal movement or rewards. Also, the form used for the merged company may not be suitable for all employees. Next, the supervisors that have to administer the form ...

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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?'

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.

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