Forms of Combinations

When two or more business units are combined on the basis of ownership, such combination are known as forms of business combinations. These forms are

classified under three headings:

A Simple Association

B. Federation

C Consolidations

A. SIMPLE ASSOCIATIONS:

The simple associations are the loose type of business combination where the traders, businessmen and industrialist of the same locality form their associations under the country laws to achieve some objectives. These associations are further divided into the following headings:

• Trade Associations .
• Chamber of Commerce
• Gentlemen Agreement

1. Trade Association:

The trade association is a voluntary association traders, business and industrialist who are engaged in the same kind of business and of a particular locality. The associations work for the welfare of its members and achieve some common objectives. The member firms remain independent and are free in their major business decisions.

Objectives:

• The main objectives of trade associations are as follows:
• To work for the common interest of its members.
• To avoid the competition among its members.
• To promote the interest and welfare of its members.
• To create friendly relationship among its members. To arrange for the supply of raw material and labour at reasonable rate.
• To establish its common fund
• To arrange to supply the labour at learnable late

Management:

The management of trade association is done by a body elected by its own members. The management body looks after the interest of its members and provides them necessary information regarding their business.

Source of Finance:

The members of this trade association contribute monthly, quarterly or

objectives of the trade association.

2. Chamber of Commerce:

annually funds of the association. These funds are utilized to achieve the common The chamber of commerce is the representative body of at district level of businessmen engaged in manufacturing, trading, banking, insurance, transportation and communication etc. it has close touch with the ministries of commerce industries finance. The government can also appoint some members as its own representative in the management committee.

3. Gentlemen’s Agreement:

The gentlemen’s agreement is an oral agreement among the competing and rival business units to act upon according to the agreed manner. These are also known as informal agreements. All the member business units remain independent but it is their moral duty to abide by the terms and conditions of their oral agreement. If any member of the combination violates the terms of the agreement, he may be imposed fine or may be excluded from the membership of the combination.

Objectives:

• To avoid competition among its members.
• To control and regulate the prices of the product.
• To control and regulate the output of its member units.
• To promote sale of the product.
• To create friendly relationship among its member units.

B. FEDERATION:

The business combination in the shape of federation is further divided into the following two types

• Pools
• Cartel

1. Pools:

A pool is a form of business combination, where the manufacturers or the dealers of the same goods and services enter into an agreement to control and regulate the prices of their product. The members firms have their separate entity but are bound to follow the common policies of the pool in order to regulate output, prices and sale of their product. The main purpose of pool is to eliminate the competition among rivals and to increase their profit. In order to achieve these objectives, the pool may fix output quota or divide the market among its members and to fix the prices to be charged from the customers. The main classes of pool are as under:

Production Pools:

The production or output pools are formed to control the output of the member firms according to the existing demand. In this way, there is no over production and competition among member units. For this purpose, the pool may fix the output quota or may limit the period of production of its members.

Market Pools:

In case of market pools the total market of the product is divided among its members, prices are fixed and no one can sell his product in the allotted area of another member unit. In this way the competition is controlled and sale of each unit is assured which results in profit to all its units.

Income Pools:

In case of income pools, the basic price is fixed to cover the cost of product and members are allowed to sell the goods at higher rates. The amount received by all the member firms in excess of the basic process is pooled and divided among its members according to their agreement in this way the income or profit is assured.

Export Pool:

When the Exporters of the same goods pool their output and fix the same

prices for export purposes to eliminate competition and to earn more profit, such pool may be named as export pool

Patent Pool:

This is the combination of various producers to pool their patent rights and

sell their product under one trademark.

Advantages of Pools:

• The following are the main advantages of pool:
• It is easy form of business combination.
• It eliminates competition and rivals become friends
• In case of price pools, the prices of the product remain stable.
• In case of income pools, every member firm gets its profit according to the agreement and there is no risk of loss.
• In case of pool, the entity of each member firm remains separate.
• The output pools control the over production so the supply remains equal to its demand.
• In the case of pool there is no competition, so there is no need of heavy advertisement.
• In case of market pools the cross freight cost is reduced and goods are available to customers at lower rates,

Disadvantages:

• The disadvantages of pools are as follows:
• The members firms often neglect the pool agreements.
• It is unstable form of business combination, which easily comes to an end.
• No legal penalty can be imposed of the members who disregard the terms of the agreement.
• In case of production pools, efficient firms cannot produce according to their capacity.
• In case of pools, consumer’s rights are often overlooked.
• The pools lead to monopoly, which is dangerous for the public interest.
• The pools give undue projection to inefficient units

2.Cartel/Syndicate:

A cartel is a voluntary association of the producers of the same goods to secure monopoly position in the market. The member of the cartel (syndicate) is free in production as well as in central management but is bound to hand over their entire output under agreement to a joint selling agency for sale purpose. In fact, the cartel is a common marketing agenda of its members. The cartel takes full responsibility for marketing the goods of its member units. The cartel may be formed at national as well as international levels. The cartel does not ear profit for itself but whole the profit earned is distributed among the members according to their quantity of goods provided to the cartel for sale purpose. The cartel was first of all formed in Germany.

Advantages:

The main advantages (merits) of cartel are as follows:

Elimination of Competition:

In case of cartel, unnecessary competition for the sale of more eliminated.

Reasonable Profit:

The cartel has nearly a monopoly position in the market, so all he members in a cartel are in a position to earn reasonable profit.

Reduction in Cost:

The advertising and selling cost of the members units is controlled and minimized by the cartel.

Stability in Price:

As the cartel has dominating position in the market and as such has control

 Entity:

internal management and their separate entity (identification) is not lost. on the prices of product, so the prices remain stable in the market In case of cartel, the member units remain independent in their reduction and

Stable Combination:

The cartel is more stable combination as compared to the pool and its life is comparatively more than pool.

Economic of Large Scale:

All the economies of large scale distribution are availed by the cartel.

 Concentration on Production:

As the market responsibility is taken by the cartel, so the member units in better position to have full concentration on the production

Control on Supply:

As the cartel has control on he supply of goods, so he goods are supplied in the marl according3to is demand. In this way, price remains stable and member firms earn reasonable profit.

Disadvantages:

The main disadvantages (demerits) of cartel are as follows:

Monopoly:

The main purpose of this sort of combination is to create monopoly position in the market, which is against the benefits of the general public.

Encourage New Entities:

The cartel as have monopoly position, charges high prices of its goods, so it enumerates the outsiders to enter in the field. So the competition still remains open by new entity.

Insatiable Life:

The cartel is an insatiable form of business combination and it cannot run for longer period.

No Uniformity:

In this sort of combination, member units are free in production, every one tries to produce more without having concentration on the quality of goods and there is no uniformity found in the production of all its members. Consequently, the sale becomes difficult less than one label.

Undue Protection:

This sort of communication gives undue protection to inefficient units, which

are the members of the cartel.

High Prices:

As the cartel has control on the supply of the goods, so it charges high prices

earns unreasonable profit, which is harmful for the general public.

No Competition:

The positive competition is necessary to maintain the quality of goods and to keep the prices at reasonable level. But cartel eliminates competition by Dfa Ho which their objectives cannot be achieved.

C. CONSOLIDATION:

The consolidation is sold form of business combination and it may be partial or complete.

• Partial Consolidation
• Complete Consolidation