Why does the government carefully m onitor horizontal mergers?

Answer 1

Most governments will monitor horizontal mergers because there is a risk that they will reduce competition, leaving customers with less choice of where to buy from. In extreme cases, a lack of competition can lead to higher prices.

Horizontal mergers refer to mergers between companies that supply the same products or services to the same customer group. Vertical mergers by contrast refer to a company joining with one of its suppliers or customers.

The problem for regulators comes in deciding what market - the products, services and customers - should be considered. The definition of the market is often what is challenged in court when companies appeal against a regulator's decision.

The other problem for regulators is deciding how few companies in a market will cause limited competition. In countries like Australia, many markets effectively end up as duopolies, in other words with just two dominant players. This is because the size of the market is too small to economically support more than two large players; more players would mean that economies of scale are not being met