There is currently a situation occurring with two of the country’s biggest sugar producers. The two companies, Mega Corporation and BIG Enterprises, are considering a merger of their two companies to become one company, the Mega-Big Corporation. If this merger proceeds as planned, then the Mega-Big Corporation will control over 80 percent of the market share in Brazil. With such a large market share, the Mega-Big Corporation would be considered a monopoly of the sugar market. In the discussion that follows, pros and cons of the merger will be discussed. It will then be up to the government to decide whether or not to intervene in this merger. The only entity in this situation that may actually benefit from the merger is the Mega-Big Corporation.
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In consideration to the Mega-Big Corporation, the incentive to innovate would dissolve as a result of the merger. In a perfectly competitive market, innovation is a key component to a company’s success. Without competition, the incentive to innovate would shrink, and the invention of new technologies would decline, or even disappear altogether. This decline could lead to a situation in which the company doesn’t discover a new technology. This new technology could potentially reduce the company’s cost of production of sugar. Without inventing this new technology, the Mega-Big Corporation would produce sugar at a higher cost than what is necessary, leading to an inefficiency. Reduced innovation in Brazil’s food production industry could also cause that industry to fall behind the rest of the world technologically. Another party in this situation that would suffer is the consumers of sugar. As discussed previously, the Mega-Big Corporation would no longer be a price taker and instead become a price setter. As a result the consumer both pays more for the sugar, and consumes less of the sugar than what is economically efficient. This inefficiency is detrimental to both the consumer and the society of Brazil itself. As mentioned before, when the Mega-Big Corporation changes their price on sugar beyond the market price, there is a reduction of consumer surplus. There is also a reduction in total sugar output by the sugar industry in Brazil. Unlike the reduction of consumer surplus, this reduction in output isn’t transferred to a different entity and is known as the deadweight loss that society will suffer
In consideration to the Mega-Big Corporation, the incentive to innovate would dissolve as a result of the merger. In a perfectly competitive market, innovation is a key component to a company’s success. Without competition, the incentive to innovate would shrink, and the invention of new technologies would decline, or even disappear altogether. This decline could lead to a situation in which the company doesn’t discover a new technology. This new technology could potentially reduce the company’s cost of production of sugar. Without inventing this new technology, the Mega-Big Corporation would produce sugar at a higher cost than what is necessary, leading to an inefficiency. Reduced innovation in Brazil’s food production industry could also cause that industry to fall behind the rest of the world technologically. Another party in this situation that would suffer is the consumers of sugar. As discussed previously, the Mega-Big Corporation would no longer be a price taker and instead become a price setter. As a result the consumer both pays more for the sugar, and consumes less of the sugar than what is economically efficient. This inefficiency is detrimental to both the consumer and the society of Brazil itself. As mentioned before, when the Mega-Big Corporation changes their price on sugar beyond the market price, there is a reduction of consumer surplus. There is also a reduction in total sugar output by the sugar industry in Brazil. Unlike the reduction of consumer surplus, this reduction in output isn’t transferred to a different entity and is known as the deadweight loss that society will suffer