Editing Mergers and acquisitions (section)

====Short-run factors====
One of the major short run factors that sparked the Great Merger Movement was the desire to keep prices high. However, high prices attracted the entry of new firms into the industry.

A major catalyst behind the Great Merger Movement was the [[Panic of 1893]], which led to a major decline in demand for many homogeneous goods. For producers of homogeneous goods, when demand falls, these producers have more of an incentive to maintain output and cut prices, in order to spread out the high fixed costs these producers faced (i.e. lowering cost per unit) and the desire to exploit efficiencies of maximum volume production. However, during the Panic of 1893, the fall in demand led to a steep fall in prices.

Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls is to view the involved firms acting as [[monopolies]] in their respective markets. As quasi-monopolists, firms set quantity where marginal cost equals marginal revenue and price where this quantity intersects demand. When the [[Panic of 1893]] hit, demand fell and along with demand, the firm's marginal revenue fell as well. Given high fixed costs, the new price was below average total cost, resulting in a loss. However, also being in a high fixed costs industry, these costs can be spread out through greater production (i.e. higher quantity produced). To return to the quasi-monopoly model, in order for a firm to earn profit, firms would steal part of another firm's market share by dropping their price slightly and producing to the point where higher quantity and lower price exceeded their average total cost. As other firms joined this practice, prices began falling everywhere and a price war ensued.<ref>Lamoreaux, Naomi R. "The great merger movement in American business, 1895-1904." Cambridge University Press, 1985.</ref>

One strategy to keep prices high and to maintain profitability was for producers of the same good to collude with each other and form associations, also known as [[cartel]]s. These cartels were thus able to raise prices right away, sometimes more than doubling prices. However, these prices set by cartels provided only a short-term solution because cartel members would cheat on each other by setting a lower price than the price set by the cartel. Also, the high price set by the cartel would encourage new firms to enter the industry and offer competitive pricing, causing prices to fall once again. As a result, these cartels did not succeed in maintaining high prices for a period of more than a few years. The most viable solution to this problem was for firms to merge, through [[horizontal integration]], with other top firms in the market in order to control a large market share and thus successfully set a higher price.<ref>{{cite journal |title=Principles of Economics(10.2 Oligopoly) |url=https://pressbooks-dev.oer.hawaii.edu/principlesofeconomics/chapter/10-2-oligopoly/ |website=UH Pressbooks The University of Hawaiʻi |language=en-ca |date=2016}}</ref>