What are the potential economic advantage from merger?

What are the potential economic advantage from merger?
A merger occurs when two firms join together to form one. The newfirm will have an increased market share, which reducescompetition. This reduction in competition can be damaging to thepublic interest, but help the firm gain more profits.However, mergers can give benefits to the public.1. Economies of scale. This occurs when a largerfirm with increased output can reduce average costs. Lower averagecosts enable lower prices for consumers.Different economies of scale include:Technical economies; if the firm has significant fixed costs thenthe new larger firm would have lower average costs,Bulk buying - A bigger firm can get a discount for buying largequantities of raw materialsFinancial - better rate of interest for large companyOrganisational - one head office rather than two is moreefficient Note a vertical merger would have less potential economies ofscale than a horizontal merger e.g. a vertical merger could notbenefit form technical economies of scale. However in a verticalmerger there could still be financial and risk-bearingeconomies.Some industries will have more economies of scale than others. Forexample, car manufacture has high fixed costs and so gives moreeconomies of scale than two clothing retailers.More on economies of scale2. International Competition. Mergers can helpfirms deal with the threat of multinationals and compete on aninternational scale.3. Mergers may allow greater investment in R&DThis is because the new firm will have more profit which can beused to finance risky investment. This can lead to a better qualityof goods for consumers. This is important for industries such aspharmaceuticals which require a lot of investment.4. Greater Efficiency. Redundancies can be meritedif they can be employed more efficiently.5. Protect an industry from closing. Mergers maybe beneficial in a declining industry where firms are struggling tostay afloat. For example, the UK government allowed a mergerbetween Lloyds TSB and HBOS when the banking industry was incrisis.6. Diversification. In a conglomerate merger twofirms in different industries merge. Here the benefit could besharing knowledge which might be applicable to the differentindustry. For example, AOL and Time-Warner merger hoped to gainbenefit from both new internet industry and old media firm