Wine Merger In October, 2014, Vintners Global Resource's (VGR) agreed to purchase M.A. Silva. VGR is a leading manufacturer of glass bottles and packaging for wines and M.A. Silva is a manufacturer of premium natural corks. What is the expected effect of this merger on price-cost margins?
These two companies' products are complements for each other. A price decrease for one company would lower the cost of the final product, a bottle of wine, increasing the quantity demanded and so benefit the other. Before the merger, the second effect would not have been captured by the firm reducing prices. After the merger, it would. Therefore it is more willing to reduce prices.
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What will be an ideal response?