Custom «Mergers of Large Firms within Oligopolies» Essay Paper Sample
Oligopoly refers to a market form whereby an industry is dominated by few numbers of sellers, who in most cases have emerged from merging of two or more industries/companies into one entity (Elmer 1997). Merging is driven by the due urge for cutting down on costs. Therefore at the long run there is an impact on the industry as a result of cost saving which arises from elimination of redundant services such like: accounting, human resources, and information technology among others. Other mergers try to take advantage of future opportunities that may emerge within the marketplace. Gap filling among the companies is normally experienced upon merging as one company can improve the weak point of the other by incorporating its strengths on several levels such as in distribution of goods and services to consumers. Merging also increases access to markets for instance an international company can assist up in opening access to global markets (Mathewson, 1999).
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Additionally merging impacts on the organizational competencies whereby the acquisition of intellectual and human resources can lead to innovative development within the company. Other impacts include improvement in bargaining purchase in that it is much less expensive in acquiring a company then investing internally on it, merging can be meant for diversification to enhance growth and increase profitability, boosting poor performance of one company and improving undervalued target of a company.
The proposed merger is the hospitality industry in the United Kingdom which comprises of some major leading hotels which are distributed nation wide especially in major leading cities. The Hospitality industry in UK comprises of all businesses that normally provide food, beverages, and accommodation services (Thomas, 2007). They include hotels, restaurants, contract catering, bars, pubs, clubs and hospitality services. According to British Hospitality Association, the UK hospitality industry is comprised of about 263,000 outlets, which employs more than 1.7 million people. It is notably that there exist over 46,000 hotels and guest houses in United Kingdom and this sector remains quite significant to the economy as it inputs around £40billion annually. (Trends 2008) , British Hospitality Association). The main drivers of this industry are: tourism, businesses, educational and urbanization activities both local and international. The hotel industry is categorized by oligopoly whereby the concentration ratio accounts for more than 60% of the markets total sales and demand. These hotels are rated in a concentration ration as listed: Best western 20.2%, Whitbread 18.5%, Compass 10.7%, Six Continents 10.2%, MacDonald 6%, Corus and Regal 5.1%, Choice 4.9%, Hilton 4.6%, Jarvis 3.6%, Accor 3.5%, Thistle Hotels 3.1% and Moat House 2.4%. (Lundberg 2000). The level of performance is determined by quality of services offered and the available facilities from time to time to their customers, therefore the most unique hotel tops the day.
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Using the 4 firm concentration ratio it is evident that it stands at 59.6% while at the 8 firm concentration ratio it is 80.2%. This therefore means that there is some extent of minimal monopolistic competition but in most cases we see oligopoly dominating the markets in the UK. Additionally according to Herfindahl Herschler Index the hospitality industry shows that the hotels performance according to concentration ratio some like best western and Whitbread are very competitive therefore they own the largest market shares.