Advantages and disadvantages of Business Combinations
Advantages of Combinations
Combinations by reducing the cost of production make products available at cheaper price to the consumers. Following are some of the major advantages of Combinations in this regard:
1. Elimination of Competition: By Combinations, undue and unhealthy competition is eliminated which removes the fear of loss from the minds of producers. In addition, consumers and workers are also benefited in this situation
2. Economy in Production : A Combination can make purchases and bulk purchases means purchasing at cheaper rates. Likewise, it can acquire better transport facilities. It is in a position to make experiments and reduce the cost of production. Thus, all round economy can be affected and consequently cost price is reduced.
3. Economy in Administration : A business Combination has centralized management. If the units had not combined, all of them would engaged separate managers, clerical staff etc. But by combining they reduce administrative expenses to a great extent. Besides this, a Combination can secure the services of experienced and competent hands because such people always like to work in big business houses.
4. Economy in Distribution: Wasteful advertisement is avoided and it becomes possible to have constructive advertisement. Local branches of depots supply to a particular area and thus cross freights are avoided.
5. Maintenance of Selling Prices: As competition is eliminated there is no loss due to price fluctuations. This results in the stability and efficiency of business.
6. Rationalisation and Modernisation : As a consequence of Combination, the schemes of rationalisation and modernisation can be very easily implemented which produce the superior goods at a cheaper rate.
7. Specialisation in Production: By Combination, specialisation becomes possible which help in making standardised goods by the specialists. Thus, quantity improvement becomes possible.
8. Protection against Depression: Combination work as an umbrella against a rainy day of depression when the demand falls so much so that even the existence of the concerns becomes in danger. This situation is protected by Combination.
9. Exchange of Skill: By Combinations, various business units join their hands together, which make possible the exchange of the export skill among various concerns.
10. Development of Co-operation : Combination creates the feeling of mutual co-operation among various combining units.
Disadvantages of Combinations
Following are the disadvantages of combinations :
(1) Conspiracy against Consumers- It may be held against monopolistic combines that they either originate or culminate in conspiracy against consumers. Having built up monopolistic power, a combine may exploit the consumers by changing higher prices. This ruthless profiteering will, of course, have its limits in cases where subsitutes are available to replace the products of the monopoly
(2) Throttling of the small business- A powerful combine may use all kinds of unfair tactics to root out small businessmen. This is objectionable in free enterprise economy where every body has the right to carry on his business.
(3) Increased risk- A combination in the business would brings about a concentration of resources and increases the risk of the community. A large combine may collapse to the deriment and disway of all those having stakes in it, say due to the incompetence or dishonesty of its officials.
(4) Over-Capitalism- While the short-term monopoly is open to the charge of encouraging inefficiency through the restriction of output and the provision of an opportunity of survival to the relatively less efficient units, the long-term monopoly resulting from fusion of business units carries in the seeds of over-capitalisation and watering of capital.
(5) Mal-distribution of productive resources- From the social stand point it is desirable that the output should be carried to the point where the marginal utility of an additional unit of output equal to its marginal cost to the society. A monopoly will generally produce only up to the point where the marginal revenue from the additional unit is equal to the marginal cost to the monopoly of that additional unit. Each monopolistic combination will tend to produce less of their products than in demanded by the general interests of the community. Their existence will naturally result in less satisfaction from a given income, produced with a given efficiency.
