Discussion
While merging two monopolistic entities may increase sales and profits, it may be difficult for mergers to achieve balance in specific markets, such as the food industry. For example, while it may be easy for computer engineering firms to merge and advance product development, it would be impossible for a Chinese food restaurant to merge with an Italian restaurant. In this case, providing a combination of both foods may make little to no sense. In this case, the merger would suffer a loss of customer trust, resulting in significant losses. However, certain mergers, such as those involving computer system companies, find it relatively easy to collaborate and develop their products due to the nature of their businesses (Corporate Finance Institute. 2021).
Additionally, many small businesses operate under conditions of monopolistic competition. As a result, businesses such as restaurants can offer various foods and emphasize their brand’s uniqueness. Even though they offer different foods, these companies compete for the same customers.
As a result, independent businesses make decisions based on the price and output of their products, customers, and manufacturing costs. Monopolistic competitors may be blind to one another’s actions and may pursue divergent strategies for brand promotion and customer service. Additionally, knowledge is widely disseminated in monopolistic competition, even if it is imperfect. For example, customers may peruse various menus from various restaurants throughout the town but may not appreciate a particular diner until they have consumed the product. Additionally, the risks inherent in monopolistic markets may prompt entrepreneurs to play a significant role due to straightforward decision-making processes in perfectly competitive markets.