Untitled Essay, Research Paper

In today & # 8217 ; s modernised universe, there seem to be several luxuries that we can non populate without. In a big metropolitan country such as Los Angeles, autos and the gas that fuels the autos are a must. So what would go on when the figure one and figure two oil companies in the United States decided to unify together? The trade itself would be deserving 75.3 billion dollars, doing the new Exxon Mobil one of merely two major fuel suppliers along with Royal Dutch/Shell until the amalgamation between British Petroleum and Amoco Corp. is approved. For Exxon and Mobil, they would be salvaging over 2.8 billion dollars in close term nest eggs entirely, have entree to more resources so they would hold separately ( intending an outward displacement in their supply of fuel ) , and stronger market power so earlier. The most outstanding concern that our authorities would hold is the last alteration & # 8211 ; merely how much more market power would this new corporation hold? Since gas and fuel merchandises are already at a by and large inelastic demand, any downward displacement in measure supplied even with supply shifted outwards would merely increase the house & # 8217 ; s net incomes with the consumers powerless to halt it. Even with a 2nd or 3rd rival in the fuel industry, this market would still be monopolistically competitory. Exxon and Mobil knows that they can bear down below the supply and demand equilibrium for their ain good, and would merely be prompted to switch measure supplied back near equilibrium merely if a rival like Royal Dutch/Shell continues to sell at the market equilibrium. It might be inefficient ( holding a dead weight loss ) by selling below the market monetary value, but it would be profitable. Unfortunately, in this natural resources

market, entry is not easy. To be even a minor contender, one must go through the hassle of obtaining the land with the resources, equipment to extract and to refine these resources, and finally distribution of the final product. This obviously requires much capital and skilled labor to begin with, making the new entries nearly ineffective as to changing the output of gas.For Royal Dutch/Shell and other competitors they would hope Exxon Mobil would produce with excess capacity, they would then be able to match Exxon Mobil’s production so all firms in the fuel market would be selling below equilibrium, and every firm would enjoy higher profits at the consumers expense. However, if Exxon Mobil decides that with its new abundance of resources, Exxon Mobil can intentionally shift quantity supply outward. Even though Exxon Mobil would be making less profit, the consumers would now be prompted to buy Exxon Mobil gas instead of any other. The few competitors in this market would have to attempt to match Exxon Mobil’s lower pricing or be run out of business. Even though all firms would be suffering, since Exxon Mobil has the most resources, they would outlast everyone else. This is the kind of market power that our government wishes to prevent.On the consumer side, if the merger is allowed, there could be a slight increase in gas prices in the long run. Unless Exxon Mobil decides to try to run other competitors out of business, then the consumer would experience a definite decrease in prices for gas in the short run, but a great increases in price in the long run should Exxon Mobile succeed and become the only major firm offering to sell gas. Either way, a merger would not be for the better for us, the consumer.