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Expansion and Mergers - Essay Example

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The basic reason why governments regulate business is in situations whereby natural monopolies exist. According to Carroll and Buchholtz (2011), “A natural monopoly exists in a market where the economies of scale are so large that the largest firm has the lowest costs and thus drives out other competitors” (p. 356). …
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Expansion and Mergers
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Download file to see previous pages 356). In this regard, a natural monopoly may have adverse effects on the market economy once organizations engage in anticompetitive practices aimed at locking out their competitors out of business. In addition, the monopoly may engage in other practices like fixing prices of goods, which is not the ideal situation in a free market. On the contrary, government regulation is crucial in dealing with excessive competition practices in the market economy (Carroll & Buccholt, 2011, p. 358). In this case, firms will engage in setting prices below unprofitable levels forcing some firms out of business while the remaining firms will raise their prices resulting to products that are too expensive for the consumers. Government regulation is important in controlling negative externalities in a market economy (Carroll & Buchholtz, 2011, p. 357). By definition, Hackette and Moore (2011) defined “a negative externality as an uncompensated harm to others in a society that is generated as a by-product of production and exchange” (p. 61). It is evident that production of good has many by-products with some being harmful while the manufacturer does not pay for the harm caused. In effect, the manufacturer produces more products and earns more profits without catering for the harmful effects of the by-products. In this case, governments will always regulate such industries in order to ensure businesses do not risk the lives of others while making more profits. Rationale for the Government Intervention in the US Market Process As earlier indicated, governments regulate businesses to ensure that there was no market dominance by a monopoly. According to Geroski and Jacquemin (1985), dominance of a business firm goes hand-in-hand with the ability of the firm to exploit a strategic advantage to gain a large share of the market at the expense of its business rivals (as cited in George & Jacquemin, 1992, p. 150). In this regard, it is possible for business firms to use anticompetitive strategies and try to edge out their competitors. Although the US is a free market, it is important for the government to intervene and ensure that all businesses engaged in ethical business practices. Since the US is a free market, it is important for the forces of demand and supply to determine the market price of goods and services. In this case, it is important for the government to regulate businesses in industries that fixed prices below the profit making levels in order to get rid of their competitors, in the US. In this regard, the government's failure to regulate makes the businesses eliminate their competitors and only raise the price of goods once their competitors are not in the market. In effect, these unethical practices do not provide for a competitive market environment. Therefore, this emphasizes the importance of government intervention in the form of regulation to ensure the forces of demand and supply remained as the important factors in determining the prices of goods and services. Self-Expansion Complexities on Capital Projects The underlying complexity currently facing any capital project in the US is obtaining capital required for expansion after the recent recession. According to LaBonte (2009), the weak economy and competition from other manufacturers led to decreased market share of the US automobile industry. In addition, the recession had an effect on credit facilities in the country. In this regard, LaBonte (2009) noted, “The recession had made credit facilities less available, which may have limited the ability of auto manufacturers and suppliers to finance their ...Download file to see next pagesRead More
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