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What synergies and economies of scale can be taken advantage of when two companies become one?

What synergies and economies of scale can be taken advantage of when two companies become one?

Anti-competitive business practices refer to illegal behavior that limits or prevents fair market competition. They generally lead to higher prices, reduced quality or levels of service, or less innovation. Anti-competitive practices include activities such as monopolization, price fixing or discrimination, group boycotts, or merger among competitors, among others.

A well-known company that was in the news recently is Peloton. Peloton is a 7-year-old fitness-tech company, that offers an at-home streaming subscription service with more than 13,000 recorded workout classes (most of which incorporate music). The story started in March, when the National Music Publishers’ Association (NMPA), a group of music publishers, filed a $150 million copyright infringement lawsuit against Peloton. NMPA claimed that Peloton knowingly used thousands of songs in its workout videos from over 1,000 high-profile musicians like Bruno Mars, Drake, Ariana Grande and Lady Gaga without proper licensing. Peloton denied all allegations and said there was no infringement; the company properly and lawfully obtained all necessary licenses and paid all music publishers and independent record labels. In April, Peloton responded by filing a countersuit against NMPA for antitrust violations, alleging that the NMPA pushed a coordinated effort among its members to “fix prices and to engage in a concerted refusal to deal with Peloton.” The countersuit also states, “Through these actions, the NMPA has exceeded the bounds of legitimate conduct for a trade association and become the ringleader of concerted activity among would-be competitor music publishers, all in violation of antitrust law.” The behaviors in this particular case that point to horizontal restraints of trade include: 1) price fixing – a collaboration between members of the NMPA to manipulate pricing; and 2) refusal to deal – NMPA prevented its members from teaming up with Peloton.

I find mergers and acquisitions fascinating. In an effort to remain relevant, cutting edge, and steal market share from competitors, mergers and acquisitions are a must in the business world. The topic I chose for this exercise is vertical mergers.

Vertical mergers happen when two firms with a buying and selling relationship merge to form one company. At the end of the day, it’s about gaining a strategic advantage in the marketplace. What synergies and economies of scale can be taken advantage of when two companies become one? Over the last few years, vertical mergers have made a comeback. Can you find success swimming upstream to take advantage of the vertical chain?

The most recent example is the mergers of AT&T and Time Warner. As technology improves and becomes more prominent in our day-to-day lives, I’m certain we’ll more vertical mergers in the near future.

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