Combination Act

Combination Act

Combination, the act or result of joining two or more previously independent firms into a single organization; also referred to as amalgamation, merger or take-over. It is important as a method by which firms may grow and diversify their interests, the main means by which the control of resources in manufacturing has been concentrated in comparatively few hands, a way of achieving monopoly power, a preliminary to the organized removal of excess capacity, and a source of profit to financiers.

Industrial combination in Britain dates mainly from the i88o's. It is the offspring of the Companies Acts, improved methods of communication and large-scale techniques of production and administration. The tight to organize industrial concerns as joint-stock companies with limited liability enabled ownership in companies to be united by the simple expedient of an exchange of shares, and it provided lucrative opportunities for company promoters.

The first widespread merger movement occurred at the turn of the century when such combinations as the Wall-Paper Manufacturers (embracing 31 firms representing 90 per cent of the trade), the Calico Printers Association (46 firms with 830 of some 1,000 printing machines) and Associated Portland Cement Manufacturers (27 firms with 45 per cent of the trade) were formed. All these combinations aimed at securing a monopoly of their trades. But amalgamation is an expensive method of arranging a monopoly. It is in the interests of each firm to be the odd one outside the combination able to sell all it produces or wishes at prices maintained by the combination's restrictions on output. Hence firms may have to be brought in on terms that represent their nuisance value rather than their value as operating parts of the combination; this is the reason why combinations seldom achieve 100 per cent control of a trade. Monopoly power is also difficult to preserve if entry of new firms cannot be barred. The more successful a combination is in maintaining prices and profits, the greater the encouragement to new entrants. The Wall-Paper Manufacturers' combination engaged in further bouts of acquisition in 2005 and 2004, and its share of the trade has tended to decline again since 2005. Associated Portland Cement engaged in further amalgamations in 2002 and 2001.



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