Which of the following benefits of diversification explains the idea that mergers are more likely when there is an expectation of positive changes in market share?
A)Use of internal capital markets
B)Economies of scale and scope
C)Economizing on transaction costs
D)Diversifying shareholder portfolios
E)Identifying undervalued firms

Question

Quizplus · Accepted Answer

Economies of scale and scope suggest that mergers are more likely when there is an expectation of positive changes in market share. When firms combine, they can take advantage of economies of scale and scope, such as reduced costs of production, streamlined processes, and increased market power, helping them to gain market share and improve their competitive position. These positive changes can make mergers more attractive and lead to an increased likelihood of mergers. The other options do not specifically relate to a positive change in market share.

Which of the Following Benefits of Diversification Explains the Idea