Two Thirds of Mergers Fail, but Many CEOs Will Still

question 40

Multiple Choice

Two thirds of mergers fail, but many CEOs will still try for a merger and risk millions of dollars because they believe that this one will be the exception. What mistake do these CEOs make?

• A) Sunk-cost trap
• B) Negativity bias
• C) Overconfidence
• D) Escalating commitment

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Definitions:

Market Demand Curve

A graphical representation showing the quantity of goods consumers are willing and able to buy at various prices within a given timeframe.

Law of Demand

An economic principle stating that as the price of a good or service increases, the demand for it decreases, and vice versa, all else being equal.

Perfectly Competitive Markets

Markets characterized by many buyers and sellers, homogenous products, freedom of entry and exit, and perfect information, where no single participant can influence the market price.

Law of Demand

The principle that, all else being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.