How do mergers typically affect market competition?

Mergers typically reduce competition among businesses primarily because they combine two or more companies, leading to a concentration of market power in fewer hands. This consolidation can result in a decrease in the number of competitors in a market, allowing the merged entity to potentially raise prices, lower quality, or reduce innovation, as there may be less pressure to compete vigorously.

When companies merge, they may gain a larger market share, which can lead to dominant positions in the market. This dominance can discourage new entrants due to high barriers to entry or the perception that the market is less competitive. Existing competitors may also struggle to compete, knowing that the merged firm can benefit from economies of scale or enhanced resources.

In contrast, while increasing competition, eliminating competition for new entrants, or creating multiple new competitors could be potential scenarios in certain contexts, they do not describe the typical outcome of mergers. The predominant trend is that mergers lead to reduced competition, as they streamline operations and create larger entities with sustained market presence.