Under which of the following circumstances does a merger between companies typically occur?

• A. When firms are required by law to merge due to low market concentration
• B. When firms seek to increase market power or efficiency by combining resources
• C. When firms aim to reduce their total output to zero
• D. When firms want to decrease competition by raising prices independently

Answer: (B)

Verified step by step guidance

1. Understand the concept of a merger: A merger occurs when two or more companies combine their resources to form a single entity, often to achieve strategic goals.
2. Identify common reasons for mergers: Firms typically merge to increase market power, achieve economies of scale, improve efficiency, or expand their market reach.
3. Analyze the given options: Mergers are not usually mandated by law due to low market concentration; rather, antitrust laws often prevent mergers that reduce competition.
4. Recognize that firms do not merge to reduce total output to zero, as this would eliminate their business operations and profits.
5. Note that while firms may want to reduce competition, they do so by combining resources to raise prices collectively, not independently; thus, mergers help in coordinating market power.