The Issues Relating to the Battle over Market Domination - Term Paper Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2014 Table of contents Executive summary………………………………………………………………………..3 1.0 Introduction……………………………………………………………………….......4 2.0 What actually happened, reason for the issue being raised including possible impacts the change could have………………………………………………………………………….4 3.0 Key Stakeholders Impacted and Impacts of the Highlighted Issue…………………….5 4.0 Economic Theories Drawn from the News Articles and Media Reports……………….6 5.0 Other Relevant Issues in the News Article and the Media Reports…………………….8 6.0 Conclusion………………………………………………………………………………9 7.0 References………………………………………………………………………………11 Executive Summary The battle for market dominance is not a new phenomenon within the business world. Actually, the greatest business achievements in history have actually developed from company’s capability to tap into new markets, new products and even customers. On the other hand, this is not always easy especially where such moves are deemed as creating unfair business competitiveness by the aggrieved competitors. The paper has generally highlighted trouble developing over the battle to control Australia’s profitable beer market while also drawing various economic theories as they apply to the issue being raised. Introduction The major issue highlighted within the news articles and the media report is the trouble developing over the battle to control Australia’s profitable beer market. According to the articles and media report, with the people of Australia increasingly switching their particular drinking habits from the typical beer to craft beer and wine, concerns have been raised with a number of craft beer proprietors increasingly raising their complaints against their mainstream beer owner colleagues over what they term as misuse of the market powers. It is within this background therefore that this particular paper intends to dwell on the highlighted issue, drawing various economic theories as they apply to the issue being raised. What actually happened, reason for the issue being raised including possible impacts the change could have According to the news articles and the media reports, the main reason behind the battle over control over the beer market is that main stream beer owners, who together control about 90% of the Australian beer market, and who had earlier only focused on their mainstream beer brands having watched their Australian market share drop, have also joined the craft beer market. However, what is brewing the battle in particular is their purported unfair business practices aimed at dominating the beer market. According to Ferguson (2014), the mainstream beer owners have began offering various incentives to various clubs and pubs in order to capture 100% of beer taps, supplying not only their mainstream beer products but also craft beer products, instead of the expected 80% they used to offer in the past. To capture 100% of the market share, these mainstream beer owners have tried all strategies including not only bigger upfront payments, increased rebates and increased volume discounts in cases of increased product sales, but also going as far as paying for the maintenance and installation of beer taps (Kruger, 2014). According to the reports, there is actually nothing wrong with any firm trying to grow, however, what is actually being questioned is how given companies use their market strengths to attain growth. The aggrieved companies thus argue that the so-called misuse of the market power is what the competition watchdog; the ACCC ought to investigate in order to create sanity within the beer market. Figure 1 below offers a peek of the situation facing the beer market in Australia. Figure 1: Source: Australia Bureau of Statistics Key Stakeholders Impacted and Impacts of the Highlighted Issue The highlighted issue is definitely going to have a significant impact on various stakeholders within the industry. Among the affected stakeholders include customers, company workers, company managements, suppliers, distributors, business partners, media,investors in the beer market, regulators/policy makers connected with aspects of the beer industry business and industry associations as well as other working groups. In my opinion the impacts of this issue will be that customers across Australia will be deprived product diversity occasioned by the purported unfair business practices. On the other hand, since the craft beer business makes a significant contribution to the Australian society in terms of employment creation in a wide number of industries ( not only in breweries),there is a possibility that the issue will affect employment, hence having an impact on employees as stakeholders. Company managements, suppliers, distributors, business partners and investors, especially directly affected by the purported unfair business practices will have their businesses affected in terms of general growth. Regulators/policy makers connected with aspects of the beer industry business, industry associations and other working groups will be affected in terms of having to sit together to work on policies that will create sanity within the beer industry. However, in my own view point, I think the most affected stakeholders by this issue should action not be taken quickly to create sanity within the beer industry will be Company managements, suppliers, distributors, business partners and investors, especially directly affected by the purported unfair business practices. This is because, compared to the other stakeholder, they tend to significantly loose a lot in terms of profitability and market share due to the purported unfair practices. Economic Theories Drawn from the Media Report From the various news articles and media reports, a number of economic theories can be drawn. This particular media report has actually highlighted various economic theories .One of the theories that can be drawn from them is the theory of fairness, competition and cooperation. As highlighted by Fehr & Schmidt (1999), there is significant evidence that individuals would often want to take advantage of their respective bargaining power within competitive markets, but not in terms of mutual bargaining situations. Konishi & Yurtseven (2013) highlights too that there is significant evidence that individuals tend to take advantage of free-riding opportunities in unpaid co-operation situations. Figure 2: An illustration of the theory of fairness, competition and cooperation The theory of fairness, competition and co-operation generally assumes that individuals do exclusively pursue their own material self-interest and, as a result, do not show significant care as regards the social goals expected of them. This is the case highlighted within the news articles and media reports as revealed by the major Australian beer companies wanting to dominate the beer market without any regards for a reasonable share with the microbreweries. The theory of fairness, competition and cooperation thus deduces that market structures of various industries have a significant determinant on a given market’s performance. Providing a number of empirical evidences, Konishi & Yurtseven (2013) reveals that in very highly-concentrated markets, profit ratios tend to be high and thus concluded that if a given market structure is highly-concentrated; collisions tend to arise, as a result, hurting the market’s performance. The theory thus suggests that an anti-trust authority ought to employ structural regulation, which implies dividing the major dominant companies within an industry. Such policies can be very beneficial in terms of giving the weaker companies an opportunity to draw level with the strong and dominant ones such as in the case of the Australian beer industry. The graph below corresponds to the theory of fairness, competition and cooperation. Another theory that can be drawn from the highlighted issue is the standard economic theory, also known as the expected utility theory. According to Chang (2003), the standard economic theory argues that humans are capable of making their own rational decisions and that institutions and markets are healthily self-determining. This particular theory is a depiction of individual’s preferences for particular goods or services since human beings act in various predictable ways. In the case study highlighted, customers are actually highlighted as increasingly switching their particular drinking habits from the typical beer to craft beer and wine. In this case, as the standard economic theory argues, they have a right to make their own rational decisions based on various personal reasons. As illustrated in figure 3 below, due the rational nature of individuals, the indifference curves as well the postulation of constant prices and fixed incomes will give rise to a graph as illustrated below. As illustrated consumers can go for any particular position on or lower than the budget constraint of line BC as this is within their budgets. Figure 3: An illustration of the standard economic theory On the other hand, concerns have been raised with a number of craft beer proprietors increasingly raising their complaints against their mainstream beer owner colleagues over what they term as purported unfair business practices initiated. In this case, this theory seems to argue that institutions and markets are healthily self-determining; implying they too have a right to make their own rational decisions as regards the business. According to Industry Canada (2011), standard economic theory predicts that policies that reduce industry competitiveness as well as adding substantially to businesses and industry costs often leads to increased consumer prices, reduced products and services quantity and, probably reduced quality as well as consumer choices. This is especially true with highly-concentrated industries as businesses meeting little competition often impart all or their significant share of their raised costs to customers. As such, this theory highlights the importance of analyzing the likely impacts of various policy ideas on vulnerable as well as disadvantaged consumers so as to make sure the initiatives developed do not make it difficult for them to acquire critical goods and services. Other Relevant Issues in the Article I believe that other than the issue of the trouble developing over the battle to control Australia’s profitable beer market, there is an issue regarding the impacts of policy formulations that may come out as a result of the highlighted issue involving the battle over market share. In my opinion, many policies seem to be directed mainly at creating sanity in relation to solving such highlighted issue with the welfares of consumers being given a little significance. As such, significant attention ought to be directed on consumers. According to behavioural economics, for instance, various factors that go beyond quality and product prices influence consumer decisions to buy. This means they that they at times do not act as logically as the traditional economic theories would argue. This often makes it easier for many suppliers to exploit on the biases many consumers have and the resultant mistakes they often make while evaluating products ore services. In general, policy formulations should aim at not only protecting businesses from competition but also considers many issues that affect consumers including businesses taking due advantage of probably their lack of business information. Conclusion As highlighted above, issues relating to the battle over market dominations are not a new phenomenon. The paper has generally highlighted the issues relating to the battle over market domination involving the mainstream beer owners and the craft beer owners in Australia. Other than this, the paper has also highlighted various economic theories drawn from the highlighted issue. References Chang, H, 2003, Rethinking Development Economics, Volume 1 of Anthem Frontiers of Global Political Economy Series, Anthem Press, Ferguson, A, 2014, Trouble Brewing in Battle over Beer, The Sydney Morning Herald Fehr, E & Schmidt, K, 1999, A Theory of Fairness, Competition, and Cooperation, The Quarterly Journal of Economics, 114 (3):Pp.817-868 Industry Canada, 2011, Consumer Impact Assessment: A framework for assessing consumer impacts Konishi, H & Yurtseven, C, 2013,”Market Share Regulation?” Kruger, C, 2014, Craft Brewers face an uphill task, The Sydney Morning Herald Read More