Caution with Mergers and Acquisitions

"Opinion"

08/20/2010

Paul Munnis


Mergers and Acquisitions are on the move again as some $3 Trillion dollars will be spent by cash flush corporations.

Known as M&A’s these transactions all have one purpose in mind for the corporation who is acquiring – create a monopoly. For the company selling – it is an asset transfer that allows them to either close down, thus returning the money to banks or to invest while creating more unemployment, or spending the money on more M&A.

It is this monopoly tendency that must be managed by Congress. Monopolies often destroy jobs by firing the acquired workers and increasing the unemployment roll as a result. In many cases they can preserve jobs by acquiring a company going broke and resuscitate them, thus preserving jobs.

In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.

Monopolies can form naturally or through vertical or horizontal mergers. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors from entering the field or punishes competitors who do.

In many jurisdictions, competition laws place specific restrictions on monopolies.

Holding a dominant position or a monopoly in the market is not illegal in itself, however certain categories of behavior can, when a business is dominant, be considered abusive and therefore be met with legal sanctions. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyright, and trademarks are all examples of government granted and enforced monopolies. The government may also reserve the venture for itself, thus forming a government monopoly.

In any event, the SEC and Congress must exercise oversight responsibility to protect our economy.

Now here is a test question for you. Is McDonald's a monopoly?