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What You Need to Know About Corporate Merger Mania

What You Need to Know About Corporate Merger Mania
Photo by Joshua Ness on Unsplash

Nothing keeps us on our toes like good ole’ fashioned competition. Whether it’s in your personal life or in the world of business, we are a competitive species and calibrate our behavior to our surroundings. In a capitalist society, competition is needed for markets to function properly. This is why the latest round of merger mania has some people concerned that whole sectors of the economy are becoming less competitive. Many of the different brands that you may think compete with one another are increasingly becoming part the same company.

Some say mergers are not necessarily a bad phenomenon. There can be significant cost savings in combining companies, which benefits both consumers and shareholders. Either way, mergers are rapidly changing the business world faster than most of us can keep track of. Let’s take a moment to go on a hypothetical trip with someone we’ll call “John Q. Consumer” to see what merger mania has done to the business landscape.

“John Q. Consumer,” like most millennials, would go to a travel website to book his trip, perhaps Expedia, Orbitz, Travelocity, Homeaway, Hotwire, or Hotels.com. If he does his research, he’ll figure out that all those websites now belong to the same company. Shocking as it may seem, a whopping 75% of the online booking market is controlled by one company.

During this booking process, “John Q. Consumer” will also discover his flight options are slim pickings. Merger mania has left the United States with only four large airlines, and depending on where you live, you’re probably stuck with the airline that dominates your home airport.  If “John Q. Consumer” lives in Atlanta he’ll likely have to fly Delta Airlines, as it controls almost 80 percent of the market share there. If he lives in Charlotte, he’ll probably have to fly American (88 percent market share), in Baltimore he’ll be dependent on Southwest Airlines (72 percent market share), and in Houston he’ll likely be on United Airlines (78 percent market share).

Next, “John Q. Consumer” would need a rental car for his hypothetical trip. Despite all the colorful names and the endless lines of counters at the airport, the actual choices in the world of rental cars aren’t too numerous either. In reality, there are only really three major companies in this sector.  Enterprise, National, and Alamo are one company (49 percent market share), Hertz, Dollar and Thrifty are another (20 percent market share), and Avis, Budget, and Zipcar are the third player in this industry (19 percent market share).

When selecting a hotel for his hypothetical trip, “John Q. Consumer” may be dizzied by all the hotels at his disposal. There seem to be so many hotels to pick from like Ritz-Carlton, Marriott, Courtyard, St. Regis, W, Sheraton and Westin. He may be shocked to learn that following the pending merger of Starwood and Marriott hotels, those brands will be owned by the same company. He could instead go with Hilton, Embassy Suites, Doubletree, Waldorf-Astoria, Hampton Inn or Homewood Suites which are all owned by Hilton Worldwide.

Lastly, perhaps “John Q. Consumer” would enjoy a beer at the lobby bar after his long hypothetical trip. The brand that he would order would most likely brewed by Anheuser BuschInbev (almost 50 percent market share) or SABmiller (27 percent market share). A few weeks ago, it was announced that those two giants are in talks to merge.  Right now, they’re currently trying to figure out how they can become one company without triggering an investigation by the United States Justice Department. Without strategic sales that the new super-giant is now drawing up, Budweiser, Miller, Coors, Stella Artois, Fosters and Peroni would theoretically be brewed by the same company.

As you can already tell from “John Q. Consumer’s” hypothetical journey, mergers have left just a few dominant players in many industries. Today’s American economy has whole sectors where a handful of companies control a massive slice of a given market’s pie. As usual, there’s a lot of disagreement over what to do about the unprecedented amount of merger activity.

While some mergers have been nixed, most famously Time Warner Cable and Comcast (which would have controlled 33 percent of cable subscribers), most have been allowed to proceed.  Critics claim that high corporate taxation is promoting mergers, which is precisely the case of the pending mergers between chemical giants Dow and Dupont and pharmaceutical giants Pfizer and Allergan.

Examples of merger mania go on and on. In the world of health insurance for example, we’ve seen Aetna merge with Humana, and Cigna merge with Anthem (Often known by the trade name Blue Cross/Blue Shield). That leaves us with few just a few dominant players in the health insurance marketplace.  Similarly, your corner pharmacy is likely CVS or Walgreens, as they have come to control at least half the market share in every major US City through a series of mergers. Hospitals and pharmaceutical companies have also been ground-zero for the latest chapter of merger mania.  Democrats and Republicans alike are concerned about the lack of competition in the health care sector.

Overseeing merger mania is no easy task for the government; federal regulators have their work cut out for them. In the midst of all these mergers, the federal government will be required to sanction these deals and decide whether these proposed larger companies violate antitrust laws. That’s not an easy call, as it’s often hard to evaluate what the long term effects of consolidation would be in different industries.  Halting mergers may be seen as government overreach, while not doing anything may eventually lead to problems further down the road.  For now, “John Q. Consumer” is facing a world of diminishing consumer choice while politicians and regulators figure out how to manage a world afflicted with merger mania.

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