Demergers

Question 1

Why might business choose to demerge?

Answer 1

• release money to pay off business loans
• experiencing diseconomies of scale
• release money to reinvest into the firm-
• increase overall profits due to higher individuals profits

Question 2

What is the impact of demergers of businesses?

Answer 2

• may become more efficient as it can focus on smaller amounts of production
• reduces diseconomies of scale
• greater independence
• may increase market value and profit

Question 3

What is the impact of demergers on consumers?

Answer 3

• improved consume choice
• less exploitation of monopoly power
• more competitive and lower prices

Question 4

What is the impact of demergers on workers?

Answer 4

• improved manager workers relationship and lower principal agent problem
• more opportunity for employment in two firms rather than one

Question 5

Why might businesses choose to stay small?

Answer 5

• less regulation and administration
• diseconomies of scale
• being broken up by the CMA
• loss of control

Question 6

Why might firms have to stay small?

Answer 6

• no access to finance to allow growth
• CMA intervention
• lack the skills and expertise to expand