In October, 2014, Vintners Global Resource’s (VGR) agreed to purchase M

Business May 14, 2021

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?

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Answer:

The merger of VGR and M A Silva means a fall in the total cost of production of packing of wine bottles by VGR.

Since M A Silva produces natural corks which are used in wine packaging bottles, which earlier used to be purchased by VGR for their packaging purposes, as inputs.

With the merger, a fall in the cost of production would mean an increase in the price cost margin for the VGR, as costs per unit of production would fall much lower than the fall in price of wine packaging by VGR.

Thus, price-cost merger would fall due to the merger.

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