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    Competition and Innovation In The Market

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    The companies BASF, Bayer, Dow Chemical, DuPont, Monsanto, and Syngenta, otherwise known as “The Big Six” agricultural chemical companies, want to conduct a merger creating only four firms as opposed to six. A lot of factors go into deciding whether or not these types of mergers will be able to happen, including evaluating the market and price for agricultural chemicals, as well as the competition and innovation within the market. Historically, mergers that are implicated in highly concentrated markets cause the markets to become even more concentrated. According to the article, when the Big Six was created, corn and soybean sales became extremely more concentrated while cotton, although decreased slightly, still remained very concentrated.

    In markets like these, the few firms have complete control over their prices because there is such little competition. This forms some concern because those few firms could collectively raise their prices and consumers would have no other option but to pay the newer, higher prices. According to the article, after years of economic analysis, economists have concluded that evaluating concentration alone will indicate enough information about the market that is needed. One also needs to examine “the ease of rival entry and the ease with which buyers can switch their purchases among sellers.” Ultimately, markets with high concentration have significant power over pricing. Mergers typically create higher concentration within markets, giving firms more ability to create unfair prices.

    When markets are highly competitive, it could be unattractive to research investors. It makes it easier for the many other rival companies to keep up with and essentially copy other firms’ innovations. In a more concentrated market with few firms, there is much less risk of being copied and more time to conduct research without other firms finding out as quickly. Just from this information, it would be easy to conclude that a merger that would make the market more concentrated would lead to more investments in innovation. However, markets consisting of just a few firms could not always lead to this. Without many other competing firms, there is far less incentive to innovate.

    Firms having very little competition don’t have to worry nearly as much about other firms coming out with new products. One could easily say that firms could get almost too “comfortable” in their market without a lot of competition and not be as motivated to create new products. The article used John Deere and Precision Planting, LLC as an example. Deere tried to buy Precision Planting and was eventually denied because prior to the proposed merger, both companies produced new high-speed planting programs. The US Department of Justice argued that if these companies were to join together, their competition would be decreased and they wouldn’t have nearly as much incentive to create newer, better products.

    Firms basically have one goal: to be more successful in selling their product than everyone else in the market. The more firms there are in a market, the harder it is for the firm to make that goal a reality, meaning the more determined that firm will be to innovate. Mergers can benefit and also hurt a market when you look at it from multiple standpoints. Overall mergers can raise prices in the long run and decrease competition, therefore decreasing incentive to innovate.

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    Competition and Innovation In The Market. (2022, Nov 30). Retrieved from https://artscolumbia.org/competition-and-innovation-in-the-market/

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