Article Summary
As the chemical and agricultural inputs giants Du Pont and Dow Chemical Co. decide to merge, it raises a number of questions as to the way it is going to increase market concentrations for the products they manufacture. The merger is expected to create a market value of over $130 billion . While considering the market value and possible increase in market share of the merged entity it should also be remembered that in many of the products like corn seeds and house-wrap the two companies are not competitors. In addition to that, the two companies themselves have expressed their intention to split up into three companies after the merger, forming separate entities for agricultural raw materials, plastics and chemicals.
Though the two merging companies claim that this merger does not lead to antitrust behavior as they have only a small portion of overlapping segment; farmers, consumers and market analysts hold a view contrary to the companies’. It is widely believed that the merger will increase the market power leading to monopolistic behavior on the part of the new company that will tend to suppress supply and increase the market price. The monopoly profit-seeking will play into the market against the interest of the farmers who are already squeezed between low prices of farm products and the possibility of high input prices that can ensue from the merger.
The situation that the farmers are likely to face can be depicted in the figure below. The fall in supply is shown by a leftward shift in the supply curve from S0 to S1. This supply shortage raises the price from P0 to P1. Thus, there is justification in the apprehensions raised by the farmers and other consumer groups on the adverse impacts of the merger on the buyers.
S0
P1
P0
D
Q1 Q0 Q
Works Cited
Bunge, Jacob and Brent Kendall. "Merger of Dow, DuPont Likely to Get Close Antiturst Scrutiny." The Wall Street Journal 9 December 2015: 4. English.
Koutsoyiannis, A. Microeconomics. Macmillan Press Ltd., 2008.
