Business combination is voluntary association of firms for the achievement of common objectives. So the combination among the firms may be temporary or permanent. The combination may be formed by a written agreement between the firms, or there may be verbal indulgent among them to unite for enjoying the reward of monopoly There are many advantages and disadvantages of business combination some of them are as under:
Disadvantages of Combination
Evils of Monopoly
A business concern is a profit making concern. When there is a combination it leads to fixation of price of the commodities higher than the market price. The consumers have no option but to purchase the artificial high priced goods. The producers of raw material have to accept the price offered by the combination. The workers paid low wages. The quality of the produce is also substandard due to absences of completion.
Bad Effects of over Capitalization
The combination often raises more capital than what is required by them. The un utilized capital leads to wastage of resources. Due to fall in profits, the credit standing of the combination is adversely affected. There is, decline in the value of securities etc.
The Existence of Small Firms
Due to the growth of combination, the small firms are not able to compete with the large scale combines. So they Compelled to close down the business which creates unemployment in the country.
Exploitation of Investors
The combination has a bad name in frauds and manipulations of the minority stock holders.
The public opinion is always against the growth of combination. Hence the monopolists always exploit the consumers and inflate their profit at the cost of helpless buyers.
The combinations due to their own selfish interests overlook the national interest. They bribe and pollute the political atmosphere or satisfy their own selfish ends.
Unequal Distribution of Wealth
The combines lead to unequal distribute of wealth in society. So the class rift among the rich and poor widens.
For combating the antisocial influences of combination, legislative acts passed. Government fixes prices, provides subsidies etc.