British Airways And Iberia Airlines Case Study

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A merger is when two or more firms agree to join together to become one larger firm. There are several types of mergers.
A horizontal merger is a merge between two companies in direct competition which share the same markets and product lines. Horizontal mergers are more common in markets in which there are only a few firms. This is because this reduces the already low competition and so the potential gains in market share and the synergies are much greater. If Coca-Cola were to merge with Pepsi, this would be a horizontal merge.
Verticial merging occurs between two companies which produce different goods contributing to one final product. This is to increase synergies - the combined effect after them merging is greater than the sum of their
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A merger between British Airways and Iberia Airlines would be classed as a horizontal merger as they are both airlines. If they merged together then there would be both advantages and disadvantages to consumers and the firms.
By merging, the airlines would be able to benefit from greater economies of scale which would allow them to lower the prices whilst still making high profits. This is good for the consumers as they would be paying lower prices for what could potentially be a higher quality service. Had the merge been vertical intergration rather than horizontal integration, the firm would not have been able to benefit from these extensive economies of scale. British Airways and Iberia Airlines could combine their ideas, leading to an even better service. "European routes could be rationalised" which for consumers could mean a bigger network, while reducing the number of duplicated routes - this reduces cost as well as having a positive impact on the environment. This avoids duplication - it makes sense as there would be no point of the firm going through the same route multiple times. Again, this has environmental benefits and reduces congestion. The firm could use the money it saves into finding other routes and in the long term, they could potentially expand. The airline firm, providing it made a
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Due to the reduced competition and the new firm monopoly power, the airline could increase their prices as high as they wanted to (provided it was not unreasonable so that the government would be forced to intervene). British Airway 's market share would increase beyond the "44% of landing slots" it currently dominates. This, again, would allow them to set higher prices as consumers wouldn 't have much choice in finding other airlines to purchase tickets from. If the firm grew too much in size then they risk experiencing diseconomies of scale. After the merge, the firm may find it difficult to motivate workers and feel in control. This is because the workers could feel that they are insignificant in the big picture, especially in the case of airlines which are big multinationals. The firms could implement reward systems such as bonuses in place to help motivate

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