The recent bad state of the United States economy has mainly initiated the occurrence of horizontal mergers. This involves the combination of two companies that are players in the same industry and in direct competition with another. The move towards horizontal mergers has mainly been witnessed in the airline and telecommunications industries. In as much as mergers have an advantage, this comes against a backdrop of other faults.
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In the airline industry a horizontal merger was first seen between US Airways and America West Airlines in 2005, a move that changed the concept of mergers in the entire industry (Aluise, 2011). The other recent players to merger were: Delta and Northwest in 2009; United and Continental in October 2010; and Southwest and Air Tran, which are yet to finalize their deal (Aluise, 2011). Several benefits have been occasioned with the merger of airlines. According to Aluise (2011) this has resulted in better economies of scale, reduction in the airline capacity, the institution of better control over the pricing, better management in the face of higher oil prices, and access to international routers that are profitable. However, with all these benefits, the trend of mergers in the airline industry has decreased competition among airlines, led to the stripping of jobs, and near monopolization of the industry.
In the telecommunications industry, a horizontal merger is on the way between AT&T and T-Mobile, a move that has prompted a major controversy. To make matters worse, the Justice Department filed a suit to stop the $39 billion deal from coming to a close citing that that it will lead to higher consumer prices (Tessler & Yost, 2011). This is a major risk factor considering the fact that there are only few players in the communications industry. Currently, there are four major providers: T-Mobile, At&T, Verizon, and Sprint controlling a 90% stake (Tessler & Yost, 2011). Another factor to note is that mobile providers are also involved in the business of smart phones and tablets among other mobile devices (Tessler & Yost, 2011). This means that with the merger being instated, there will be a possible impact on the creation of jobs, especially because of the occurrence synergies.
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