Category: Competition

Introduction

There are four market types namely; monopoly, monopolistic competition, pure competition and oligopolistic markets (Peterson 1977). Pure monopolies and pure competition firms represent the two extremes of competition which is not easy to find in practice. The following is a review of an example of an organisation in Maryland operating in a pure competition market and one in a pure monopoly market.

Example of a firm operating in a pure competition market

Pure competitors such as retail operations however have no control of the market and thus no control over prices (O’Sullivan, Sheffrin, and Perez 2009). A firm in such a market could sell any quantities of its products without influencing the market prices.

It is quite difficult to get markets that are purely competitive where buyers have full knowledge, there are no barriers of entry and exit, buyers can easily switch from one seller to the other, and where there are a large number of buyers and sellers. However, retailers of agricultural commodities could provide a good example of a pure competition market.

Some traders have sought to differentiate their farm produce thus reducing price competition in this market. For instance, since consumers are becoming more health; conscious, traders of farm produce are venturing into natural foods in place of GMOs whereas packaging is also gaining prominence as a differentiation tool.

Market for agricultural products is set to change resulting to a decline in price competition. Traders are seeking other forms of competitive fronts such as packaging and focus of healthy products. Therefore, the market is set to convert into monopolistic competition where differentiation is critical. Suppliers should therefore brace themselves for non-price competition.

Example of a pure monopoly

Monopolies are organisations operating in a market where a firm has full control of the market. Such markets are characterized by a large single supplier of a product with no close substitutes. Monopolies such as oil producing companies face no competition and can influence market prices by regulating quantity supplied.

In practice, it is very difficult to get a pure monopoly since there are very few, if any, products that do not have close substitutes. Berlin Municipal Electric Company is however a good example of a monopoly firm. It is the sole operator in electric supply industry of Berlin Municipal.

The main factors contributing towards this monopoly is mainly the huge initial investment outlay required to invest in the electric sector and the government restrictions.

The Municipal electric companies are therefore maintained so as to reduce electricity costs and thus they do not compete with other private producers. They purchase energy in bulk and offer to consumers at cost with no profit motive. Their existence is therefore protected by the government.

The market might change with the increased popularity of alternative sources of power and proliferation of private power producers. To ensure that power is still affordable to the citizens, the government should offer subsidies to suppliers of clean energy. Municipal power suppliers should also be allowed to compete with private suppliers so as to ensure power is supplied in an efficient manner.

Conclusion

Pure competition and pure monopolies might not be sustainable in future. Traders in pure competitive markets will seek to differentiate their products whereas new entrants will cause monopoly powers to cease for pure monopolies.

Reference

O’Sullivan, A., Sheffrin, S., and Perez, S., (2009). Microeconomics principles, applications and tools, seventh edition. Prentice Hall

Peterson, W., (1977). Introduction to economics. New Jersey: Prentice Hall

The difference between renewable and non-renewable resources

A resource is something that is of use for people (Codrington 2005, p. 47). All of them can be classified into the following broad categories: energy resources (fuel, nuclear energy, wind energy, water energy, etc.), mineral resources, including metallic and non-metallic, organic resources (animals, birds, forests, etc.), and landscape (Codrington 2005, p. 48). Apart from this kind of differentiation, there is also another one: groups of renewable and non-renewable resources.

Renewable, or so-called non-exhaustible, resources are those that can be repeatedly used by humans; thus, their “supply can be replenished” (Boyes & Melvin 2012, p. 382). This broad group includes animals and birds, plants, wind, water, solar energy. All of the resources mentioned above are renewed in nature faster than people exploit them, which is why they are called non-exhaustible.

Inadequate usage of renewable resources and mismanagement of them usually leads to their depletion, and they gradually become exhausted. Boyes and Melvin (2012, p. 384) state that one of the reasons for renewable resources to become scarce is that they are not privately owned, and the common property is overused. Exhausted, or non-renewable, resources are generated too slowly in nature while people exploit them fast, which is why there is a limited amount of them (Codrington 2005, p. 48). This group consists of almost all kinds of metals (lead, zinc, aluminum, etc.), several non-metallic minerals, for instance, diamonds, and so on (Codrington 2005, p. 48).

When resources become exhausted and scarce, their price vastly increases, and vice versa, when something exists in abundance in nature, its price falls (Codrington 2005, p. 49). That is one of the most significant differences between renewable and non-renewable resources: the former costs less, and the latter costs more. That, in its turn, brings us to the well-known diamond-water paradox: even though water is more necessary for human beings in terms of survival, diamonds are much more expensive.

Joint demand and joint supply

Goods that people buy can be divided into three categories: those, which complement each other and are in joint demand, those, which can be substituted with each other and are in competitive demand, and those, which are needed for the production of other goods or services and are in derived demand (Anderton 2006, p. 47).

So, joint demand occurs when buying one good, people are more likely to buy another one, somehow connected to the first. Examples include lamps and light bulbs, razors and shaving cream, washing machines and washing powder, etc. Evidently, there is a stable connection between the demand for complementary goods and prices for them.

For instance, if the price of washing machines falls, people buy more of them, which boosts the demand for washing powder and thereby increases prices of it. This tendency is shown in the graph above.

Joint supply refers to the situation when two different goods are produced together because the same material is needed for the production of both of them; consequently, when one of such goods is produced, that leads to the production of another one as well (Anderton 2006, p. 49). As an example, a sheep can be supplied for both meat and wool, as well as cows can be utilized for beef and leather. If the demand for beef rises, the quantity of beef sold rises as well, which causes an unnecessary increase in leather production and, consequently, the fall of prices of leather. The tendency is shown in the graph below.

The difference between income effect and the substitution effect of a change in the price of a good

When the price of the good changes, the demand for these good changes as well, and not always in the same direction. Changes in the demanded quantity of the good can be described in terms of substitution and income effects, particularly the sum of these two values (Anderton 2006, p. 67).

The substitution effect refers to the following rule: when the price of the good increases, people begin to buy less of it since they can purchase complementary goods instead, which become relatively less expensive in such a case (Anderton 2006, p. 67). Similarly, if the price of the good falls, buyers prefer this particular good instead of the complimentary ones, and the demand for it rises.

The income effect is based on the fact that an increase in the product price leads to the fall of people’s real incomes; hence, they are not able to buy the same goods as before (Anderton 2006, p. 67). Two different outcomes follow in this case: if the good the price of which has risen is a normal good, people buy less of it, and if it is an inferior good, they buy even more (Anderton 2006, p. 67). For instance, if the price of meat increases, we buy less of it since we can substitute meat with other products, but if the price of bread increases, we buy it anyway. Moreover, since the same amount of bread costs more, we have less spare money to buy other products, and to feed ourselves, we have to buy even more bread.

So, the main difference between the concepts of substitute and income effects is that the first one works in the same direction with any kind of products (both with normal and inferior goods, including Griffen goods), while the second can describe either fall of demand (in case of normal goods) or rise of it (when it comes to inferior goods).

The difference between positive externalities and negative externalities

The term externality refers to the situation when private costs or benefits do not match with social ones (Anderton 2006, p. 119). As an example, let us imagine the following situation. The plant dumps waste into the local river in order to reduce its costs for the recycling of waste. Although it does reduce the costs, which the plant spends, it vastly increases the costs needed to clean the water in the river, and society suffers. This situation is an example of a negative externality, which occurs when social costs are much greater than private ones (Anderton 2006, p. 119).

Positive externalities are the ones that exist if the social benefit is greater than private (Anderton 2006, p. 119). The following example can be given. The pharmaceutical company creates an effective cure for cancer and gets a lot of financial benefits. However, the value of a new drug for society is even more significant since numerous lives can be saved. So, social benefit exceeds the private one, and positive externality occurs.

Positive and negative externalities differ since the first one reflects the difference between private and social benefits while the second one shows divergences in their costs. Besides, the names of externalities speak for themselves: positive externalities are useful for people, and negative ones are not. Finally, negative externalities, such as the situation with the plant described above, can cause market failure (Anderton 2006, p. 120).

The difference between perfect competition and monopolistic competition

If an industry is competitive (that is, has at least two different firms), competition within it can be of different types. Perfect competition occurs when there are many organizations in the industry, which coexist producing identical products, and none of them has economic power over the remaining ones (Anderton 2006, p. 107). Monopolistic competition, in its turn, exists when there are many firms in the industry and they coexist, but the products they produce are different, which is why each of the organizations has its own “mini-monopoly” (Boyes & Melvin 2012, p. 221).

Even though perfect competition and monopolistic competition do overlap and make many similar assumptions, as can be seen from their definitions, they are not the same. Firstly, while firms that exist in the framework of perfect competition produce identical products, those that operate under monopolistic ones produce unique goods. That, in its turn, leads to different degrees of control over prices. Under perfect competition, firms have almost no control at all; they are “price takers” since prices are established by the industry itself (Jain & Ohri 2011, p. 257). Under monopolistic competition, firms set their own prices, so they are “price makers” (Jain & Ohri 2011, p. 257). Besides, the monopolistic competition differs from the perfect one because of easy entry and exit (Boyes & Melvin 2012, p. 221). Finally, while in the framework of perfect competition, the demand (average revenue) curve and the marginal revenue curve coincide and form a line parallel to the OX-axis, the marginal revenue curve is located below the demand curve for monopolistic competition, as it is shown in the graphs below (Jain & Ohri 2011, p. 257).

Reference List

Anderton, Alain 2006, Economics, 3rd edn, Pearson Education, Delhi, India.

Boyes, W & Melvin, M 2012, Microeconomics, 9th edn, Cengage Learning, Mason, OH.

Codrington, S 2005, Planet Geography, 3rd edn, Solid Star Press, Sydney, Australia.

Jain, TR & Ohri, VK 2011, Principles of Economics, VK Publications, Delhi, India.

Foreign direct investment (FDI) refers to efforts made by an enterprise to acquire an investment in another economy other than the economy the enterprise is operating in. There are two types of foreign direct investments.

The first is called inward direct investment and the other is known as outward foreign direct investment (Siddaiah, 2009). Foreign direct investment is commonly considered as foreign ownership of the most productive assets.

These productive assets generate much revenue in a country. When foreigners own such assets, it becomes foreign direct investment. Such highly productive assets include high value factories and companies, mines and productive lands.

Usually in foreign direct investment, we have a relationship between a parent company and a subsidiary in a foreign country. This relationship gives rise to multinationals (Graham & Richardson, 1997).

Global competition is a worldwide struggle by companies to outcompete one another in the world market. Global competition is a good parameter because it brings forth highly competitive companies that provide the final consumer with quality goods.

Global competition is also used to refer to a situation where countries try to compete with one another in the international trade. In a situation where such competition thrives, only countries that produce quality goods remain relevant.

Global competition also takes effect when countries strive to attract foreign direct investment (Samli, 2008). This can take place in terms of incentives or as a way of attracting foreign investments through having political stability. There are advantages and disadvantages associated with use of global competition to attract foreign direct investment.

There has being a rise in need for economies to attract foreign direct investment and this has led to an increase in global competition among the economies. This has raised the question as to whether to let this trend continue or not.

Those who support free trade support this move but there has been an increase in war against foreign investments. Governments have been providing investment incentives, which have resulted to weaken public and domestic institutions.

The other effect of the global competition brought about by foreign direct investment is that a country may not be in a position to uphold global standards aimed at protecting the environment and enforcing workers’ rights (Wintzer, 2007).

This is because most of these foreign direct investments lead to setting up industries that are not keen in promoting worker welfare as well as protecting the environment.

However, the benefits of global competition to attract foreign direct investment should not be ignored in spite of the disadvantages listed above. The first advantage in this case is that it acts as an impetus for the government to strengthen its economic base.

For instance, a government pursues policies that enhance adequate supply of up-to-date infrastructure as well as giving citizens a chance to acquire new skills brought about by working in multinationals. This subsequently leads to economic growth of the country in question.

To attract foreign investment, a country may as well pursue policies aimed at political stability of the country and this in return translates to a good environment to both local and foreign firms operating in the country. This ends up resulting to economic growth (Graham & Richardson, 1997).

The extent to which countries engage in global competition to attract foreign direct investment is not measurable. There has been evidence that such competition exists. Due to rising needs of countries to acquire economic empowerment, such competition is expected to go up in coming years.

Countries will strive to attract as many foreign direct investments as possible to enable them reach economic stability. In the years to come countries will be forced to use innovative incentives to attract foreign direct investments (Samli, 2008).

References

Graham, E.M. & Richardson, J.D. (1997). Global competition policy. Washington, DC: Peterson Institute.

Samli, A.C. (2008). Globalization from the bottom up: A blueprint for modern capitalism. Florida, Fla: Springer Publisher.

Siddaiah, T. (2009). International financial management. New Delhi, ND: Pearson Education India.

Wintzer, E. (2007). Global competition and strategic management. Norderstedt: GRIN Verlag.

Market Growth

In this analysis, the market growth rate indicates the magnitude of market response toward the fruit juice. Measuring the markets based on this criterion, it is observable that Turkey grew its market share by 11.8% to become the country with the highest growth rate in the fruit juice market.

The analysis further indicates that Turkey’s domestic market was the most favorable compared to the rest of the market destinations for the product.

The fruit juice market in Czech Republic was the only destination market that recorded a negative growth during this period. The score of 1 on the scale of 1to 5 shows how poorly the market in Czech responded to the dynamics of growth. France came in competitively well to gain a market growth by 3.0% as compared to its previous performance. However, the Belgium gave Spain a run to close in at 2.6% margin of growth behind Spain.

Although France commands the largest market size for Fruit juice, the analysis, the market dynamics in turkey are favorable to any individual or company willing to carry on the business due to its fundamental growth trend. In the same breadth, the Czech Republic commands the smallest global market size for fruit juice.

The small market share and size by the Czech Republic however, indicates that the market will continue to shrink given the existing conditions. It is worth noting that although turkey’s market continues to grow at the fastest rate, the level of competition within its domestic market remains the lowest on a comparative scale.

The market competition of Belgium has stood at the highs of 62.5% despite its low market size of 274. It is interesting that the Czech Republic’s market experiences great competition regardless of its dwindling growth rate.

Competition

Competition is one of the best rubrics that measures the perforce of markets. Examination of the competitiveness of the six markets reveals that all the markets continue to experience competition. Clearly, France’s market experiences a low rate in terms of competition in spite of its huge market when compared to other markets.

The analysis shows that there exists no positive correlation between the market size and the rate of market growth in the six markets. This facet is explained by the fact that countries which exhibited a large market share showed low competition for the fruit juice product.

Similarly, the comparison between the market growth rate and competition shows an inverse correlation in which countries that demonstrated a high growth rate, recorded a low rate of competition. For instance, Turkey’s market grew at the highest rate of 11.8%, but saw the lowest competition rate compared to other countries by recording 19.8% competition rate.

Despite the unfavorable market growth and low market size, the Czech Republic presents itself as one of the most competitive markets among the six countries under study.

The market analysis shows that Belgium’s market harbors many firms operating in the sale of fruit juice, which may have contributed to the slow growth in its market size. Although Belgium offers a small market compared to the other markets, it remains the sole provider of the most favorable market.

In general, it is deducible that a large market has a negative implication on the level of competition as obtained from the comparative analysis of the cluster markets.

Identification of Purpose

This report seeks to assess the impact of regulation on BBA as a company following the competition commissions directive that provides that the firm should sell two of its airports.

Through the analysis of economic literature, the paper explores the costs and benefits associated with regulation. In particular, the paper evaluates the likely disproportionate effects that regulation may have on BBA as a company.

The burden of business regulation is a major concern for businesses. According to Grant Thorton/ ICAEW (2012, p.2), business professionals often rank regulatory intervention or requirements as the main factor posing serious challenges to organizational performance.

In the latest survey in the United Kingdom, 41 percent of businesses in the United Kingdom highlighted regulation as a serious challenge to their operations compared to a year earlier.

Regulatory issues were ranked first among all the challenges identified. This evidence highlights the need for further research in the area of regulation because it is an important economic issue that companies are worried about.

Critical Discussion of Current Literature

Regulation in general is very broad in meaning. Regulation can basically be defined as a specific set group of commands such as those enacted through the legislature. It may also refer to a deliberate attempt by the state to influence social and business behavior through incentive instruments (Baldwin, Cave & Lodge 2012, p. 3).

Regardless of the definition adopted, regulation is viewed as limiting behavior or freedom. According to Baldwin, Cave and Lodge (2012, p. 3), through its restrictive mechanism, regulation intends to prevent negative outcomes to the society as the regulated activity is considered valuable by the society.

In the modern context, regulation is better understood as a an umbrella where various stakeholders collaborate to achieve desirable outcomes such as best sharing practice, transparency, public participation and data provision (Solomon 2008, p. 819).

Need for Regulation

According to Dobos (2007 p. 330), regulatory interventions are situation dependent. They depend on the political and economic institutions in place that call for intervention measures.

The effects of regulation most certainly interfere with business activities, and this interference has the potential to benefit some segments of the population and harm others including the whole industry, individual players, and the market.

Because of this, it is important to assess why governments (Competition Commission) regulate and identify who they wish to profit from the regulation.

As Baldwin, Cave and Lodge (2012, p.15) note, one of the major reasons for regulation are instances when the market fails. When the market fails, regulatory intervention is justified because under market failure, the market cannot produce optimal output that matches the interest of the public.

From economic theory, markets aim at achieving Pareto efficiency; that is, markets should allocate resources in such a manner that it makes one player better off without making the other player worse off.

Nevertheless, situations arise that distort market efficiency rendering efficiency in resource allocation unattainable. When the market forces of demand and supply fail, welfare results cannot be attained and undesirable outcomes can never be stopped.

Monopolies are an example of market failure and it is a similar situation that the Competition Commission had to deal with in relation to BBA (BBC News 2011, p.1).

Under monopoly, a single producer dominates the market for services or goods in a manner that the firm maintains its position as the single seller in the market with no substitute service or product and with significant entry barriers into the market (Baldwin, Cave & Lodge 2012, p.16).

A monopoly situation is detrimental not only to the consumers but also other firms seeking to enter the market.

A monopolist aims at increasing its profits by cutting on its output to reduce its production costs while at the same time increasing the price it charges on its goods and services because the demand for its goods and services increase continuously given that supply is reduced (Baldwin, Cave & Lodge 2012, p. 16).

In the end, profits are redistributed from the consumers to the producer, which is a less optimal and socially undesirable outcome.

Dobos (2007 p. 329) argues that competition law, a form of regulatory intervention permits the return of competition into the market and splits a part the monopoly leading to more efficiency in wealth distribution.

From the BBA case, BBA ownership of the airports in the United Kingdom cannot be regarded as monopolistic in nature. However, it was the most dominant player to the extent that it could pursue some monopolistic tendencies.

According to the BBC News (2011a, p. 2), BBA operated six airports in the United Kingdom including Heathrow UKs largest airport in terms of number of passengers, Gatwick, Southampton, Glasgow and Edinburgh.

Such an ownership structure was considered by the Competition Commission to be anti-competitive.

Critical Discussion of Current Literature Pertinent to BBA Case

This section reviews some of the literature that attempts to explain the effects that regulation has on a companys performance. At the company level, the paper evaluates how regulatory intervention may affect businesses like BBA.

In the analysis, the report takes into account the role that efficient markets play in ensuring optimal market outcomes.

In addition, an evaluation is done on various literatures that have tried to ascertain the existing correlation between major macroeconomic variables and the incidence of regulatory burden.

How the Competition Commission’s Directive Affected BBAs Entrepreneurship

To ascertain the effect of regulatory intervention on BBAS entrepreneurship requires the formulation of an entrepreneurship measure (Da Silva Martins & Paula 2007, p. 22). A number of studies have paid significant attention on the volume of new entrants joining the market post-regulation and how this can be affected by the regulation of entry.

The number of new entrants may not be a perfect proxy for entrepreneurship. Nevertheless, it enjoys the advantage of being relatively easy to measure.

According to a study conducted by Solomon (2008, p. 829) using a data set from the World Bank, if the cost of regulation is increased, it limits the creation of new companies in many parts of the globe, more so in industries that enjoy high entry rates of new firms.

In the same study, the authors found out that industries that are characterized by high entry regulations are often linked with large sized businesses, which is a clear indicator that regulatory interventions often limit the set up of small companies.

This negatively affects not only the strength of competition within the markets but also the Pareto-efficient objective of attaining efficient market outcomes. Ardagna and Lusardi (2008, p. 14) carried out a similar research by Klapper, Laeven and Rajan (2006, p. 591) study.

For them, they focused on the waiting time (delay) linked with regulatory intervention as opposed to costs. The researchers modeled how bureaucratic tendencies affect business development and employment across different industries.

In their findings, the authors argue that in countries where more time is required to register a new firm, there is slow entry of new firms post regulatory intervention.

If the UK airport market portrays the same characteristics, then it implies that BBA will still benefit from the operations of its other airports due to slow entry of firms into the industry (Ciccone & Papaioannou 2007, p. 444).

In another research, Nystrom (2007, p. 3) evaluated entrepreneurship determinants in various countries. In his findings, the author argues that institutional setting is an important determinant of a countrys level of entrepreneurship.

In addition, he argues that regulatory intervention of labor, business and credit is a major determinant of a countrys level of entrepreneurship post regulation.

Empirical Literature on the Impacts of Regulatory Intervention

Ardagna and Lusardi (2008, p. 23) in their study explained the global differences in entrepreneurship. The researchers had a data set comprising of 37 developed and developing countries with detailed data on individual characteristics.

The researchers then combined the information collected from the individual characteristics with information on regulatory intervention. Their findings were in line with studies don earlier.

The results indicated that regulation plays an important role in an individuals choice to open a new business. Regulation was found to be a significant entry barrier and as a result a deterrent to entrepreneurship especially those looking for a business opportunity.

Similarly, findings from industry specific level research carried out by European Commission (2008, p. 395) in the food retail sector indicate that stringent market entry requirements makes the markets more concentrated.

This leads to a significant reduction in competitive pressures. This in turn gives rise to adverse consequences in the economy not only in terms of high unemployment rates in the specific sector, but also in form of higher prices being charged to the consumers.

This report highlights important and concrete evidence of how the burden of regulatory intervention gives rise to reduced competitive pressures, inefficiency in resource allocation and underutilization of the available resources.

The Effects of Regulation on a Country’s Economic Growth and Productivity

Several studies have been undertaken in an attempt to evaluate the impact of regulation on the economy as a whole. Evident differences exist not only in growth rates but also productivity performance in various developed economies.

In a study by European Commission (2008,p. 394), the authors attempt to device an explanation based upon regions in which countries vary most, the existing institutions and how the regulation of both the labor and product markets influence entrepreneurship choices.

The authors further analyzed how regulation can potentially affect a firms ability to join markets and compete with existing players. From economic theory, it is clear that through healthy competition, firms achieve efficiency and efficiency translates into increased productivity.

The authors argue that total factor productivity growth is inversely correlated with statewide regulation measures undertaken. They conclude that increasing regulation only has the effect of slowing productivity growth.

Similarly, in their findings, the authors note that administrative burden act as a consistent barrier entry of new players in the market.

Resulting into a waste of valuable time, increasing costs, and significantly reducing the incentive to innovative and market competitive pressures.

Risk Based Regulation as a better Alternative

As an integral component of the deregulation agenda, regulation based on risk has taken a center stage among regulation theories from the early 1990s (Lee & Stallworthy 2012, p. 9).

The objective of risk based regulation is risk management using risk tools given that risk based regulation is both scientific and economic in nature. The idea is that in managing risks, the risks should be accorded first priority and not the rules to gather the correct data and then realign the firms operations based on risk governance.

A regulation based on risks intends to create not only certainty but also better regulation premised on regulatory impact assessment.

Through the assessment, a cost benefit analysis is done to the new legislation to ascertain if its impact is balanced and if it can achieve then target for which it was set.

Nevertheless, from the 2000 new Lisbon agenda member countries of the European Union have advocated for regulatory policies that favor growth and employment creation at the expense of the environmental impacts.

Regulations should not be measured based on economic variables alone, instead they must equally incorporate measures of greater integration, more coherence, participative and strategic regulation.

Regulation of risks is quite broad. The European Union has surpassed its initial target of making legislation simpler and cutting down on the incidence of administrative burden to business.

The member countries have formulated smart legislation, which scrutinizes legislation implementation with the objective of identifying any overlaps, outdated areas and inconsistent aspects of any new regulatory legislation.

Within the United Kingdom, the environment policy has paid greater attention to the relative risks inherent within activities to improve general efficiency and reduce on the administrative burden suffered by regulated businesses.

Sustainable consumption theory contends that all other regulation theories focus on responses to industrial risks in one guise or another and that the focus should move away from the pollution to environmental consumption.

Regulation and environmental regulation in particular, should focus more on the loss of natural capital, which is inherently unsustainable and the temporal effects of environmental harm, which affects current and future generations.

The explosive combination of consumption, population growth and production are said to be causing current environmental global problems.

Conclusion

From the analysis and review of literature, the report shows that regulatory intervention can have adverse effects on economic efficiency.

These negative effects are partly a result of the effects of regulation on entrepreneurship, however a large percentage of the effects arise from the impacts of regulation on competition.

Some regulatory tendencies tend to act as bureaucratic red tape to free business operation not only in theory but also in practice.

Because of this, the number of new companies joining the market post-regulation is significantly reduced thereby reducing even further the competitive pressures.

Even though regulation is aimed at rectifying market failures and promoting the interests of the public, it is worth noting that at times a trade off occurs between the goals that regulation seeks to achieve and economic efficiency.

Excessive regulation can significantly limit competition and prevent enterprise. For this reason, regulation policies must be scrutinized in detail and thoroughly considered.

Theoretically, competition eases when economic efficiency is negatively affected. When competition is reduced, price cost margins become higher because existing companies in the market possess more market power.

This leads to reduced efficiency in allocation. Such a situation can also lead to a reduction in production efficiency.

Similarly, if competitive pressures are reduced, the long-run dynamic efficiency of firms in the industry will be affected as they will have limited incentive to remain innovative.

From the review of various economic research studies that looked into the practical effects of regulatory intervention, it is clear that regulation affects entrepreneurship across countries.

From the findings, there is increased burden associated with regulatory intervention. The burden is felt in terms of limited consumer choices, high prices, and reduced economic activities.

Findings from international research equally indicate that negatively affects the distribution of a companys size in the market. Increased regulation gives an upper hand to the big firms in the market leading to reduced competitive pressures.

From a macro-economic perspective, the effects of greater regulation have the potential to limit competition in the whole economy. This leads to reduced productivity, increases unemployment, and limits economic growth and development.

This report equally evaluated the role of entrepreneurship in the economy. The dynamic nature of entrepreneurship is a major driver of innovation, competition, and improvement in efficiency levels across all sectors of the economy.

In addition, the important role played by entrepreneurs is evidenced by the fact that they their greater participation has given rise to increased economic growth in developed economies. This is more evident in knowledge based economies like the United Kingdom.

Evidence from the United Kingdom indicates that the UK performs better relative to other developed countries in terms of regulation and ease of doing business. However, the country has begun experiencing significant challenges.

Given the competitive nature of the global business environment, the United Kingdom is losing ground according to several latest rankings.

Worse still, the United Kingdom National Audit Office has often has often expressed dissatisfaction on the degree to which the countys regulatory impact assessment effectively addresses the economic effects of regulatory intervention.

There is need for a thorough consideration on the effects of specific regulatory policies on public interests. The findings from this report clearly highlight that both theory and practice indicate the potential adverse effects that regulation continues to develop in the economy.

Governments should ensure that they create attractive business environment in which companies of all sizes can thrive. To do this, governments must work towards addressing the incidence of regulatory burden especially on small and medium enterprises.

An organization could be valued based on the price of its assets on the market at the given period. It is vital for investors and other stakeholders in an organization to know the value of the firm as it helps in establishing their willingness to invest in the firm and establishing ling term ties with the organization.

In a fair market, the price of the assets of an organization are usually not predetermined, but determined through the bargain between the buyers that are able to purchase them and the sellers that are able and willing to sell them.

For fairness to exist, there should be not party at an advanatage as both parties are expected to be knowledgeable about the market with information symmetry being fulfilled.

Similarly, the management of a given firm should be aware of the value of the organization in the market in order to avoid any overpricing the company’s assets or under-pricing them as this could result in negative outcomes (Craig 2000, p. 357).

In some cases where an organization does not know the value of the assets of the firm, a professional appraiser is employed.

The person has the duty of establishing advising the management of the firm on the current value of the firm and its assets in the market.

In order to determine the company’s value in the market, he or she could compare the firm to other similar organizations in the market to establish the reasonable price that the assets of the company could go for in the market.

Despite the establishment of the value of the assets of the firm in the market, the price of the assets could be affected by various factors thereby enabling their change.

Some of the factors include improved brand of the company and a positive reputation of the firm resulting from improved quality, corporate responsibility or customer care.

The benefits of a good reputation of an organization is that it increases the goodwill of the firm while the quality of the company’s brand could be improved through innovativeness and increased skilled employees in the firm.

The overall effect is the increase in demand of the product or services of the firm hence the financial performance of the company.

The improvement of the performance of the organization could be easily captured and reflected in the balance sheet of the company among other financial reports.

Therefore, the stakeholders of BBA can find vital information on the balance sheet of the company concerning the company’s net worth and debt among other information relevant to their interests such as the level of inventory.

List of References

Ardagna, S & Lusardi, A 2008, Explaining international differences in entrepreneurship: the role of individual characteristics and regulatory constraints, National Bureau of Economic Research, Cambridge.

Baldwin, R, Cave, M & Lodge, M 2012, Understanding regulation, Oxford University Press, New York.

BBC News 2011, BAA to sell Edinburgh Airport over competition rules, <https://www.bbc.com/news/uk-scotland-edinburgh-east-fife-15367555>

BBC News 2011a, BAA told by Competition Commission to sell two airports, <https://www.bbc.com/news/business-12903669>

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Introduction

Profit-making organizations are established to get optimal returns to investors. In this case, the situation that is regarded as the best and the most preferred is when businesses make supernormal profits in the short and long-term. This way, investors remain assured of huge returns from their equity. However, the question of whether optimal profitability across various organizations exists is one of the fundamental issues that economists endeavor to unveil its answer.

Within the sphere of business economics, the basic assumption is that firms normally set their goals, objectives, and aims in a manner that closely profiles their profit-maximization plans (Hitt, Ireland & Hoskisson 2013). Some of the perspectives that influence the economics of an industry predominantly focus on the concept of profit maximization. In other words, economists look for competitive strategies that can guarantee all-time profitable operations.

Nonetheless, some firms’ profitability varies depending on the prevailing characteristics of their operational environments. For example, as revealed in this paper through diagrams, a monopolistic firm can earn abnormal profits in both the short-run and long-term because of its capacity to continuously devise strategies for convincing clients to pay premium rates, despite the existence of competing for merchandise in the market. The paper also argues that another business operating under the condition of perfect competition makes supernormal returns in the short-run following the absence of competition and normal proceeds in the long term after rival businesses introduce analogous items for sale.

Background

Monopolistic Firms

A pure monopolistic market involves one company or an organization dominating the supply of a product. Good examples of monopolistic operations include Microsoft Company’s early dominance in the supply of operating systems and a situation where a government has the sole responsibility of offering a given service. Even though monopolies rarely exist in their pure forms, their main trait is that they improvise market rates without paying attention to the probability of any competition (Azevedo & Gottlieb 2017).

A company acquires a monopolistic power of market control when close substitutes do not exist, or its products are differentiated. Monopolies maintain market supremacy by taking advantage of economic barriers (Adumyian 2013). For example, in the case of Microsoft, when many operating systems (OS) are accessible in the market and that consumers have made high investments in software and hardware components, which can only use a specific OS, they are hindered from switching to another alternative. In this case, monopolies prevail by establishing obstacles that prevent new competitors from venturing into a market.

Businesses under Perfect Competition Conditions

Firms that operate under perfect competition rarely exist. However, the available ones function in very large bazaars, including agricultural, foreign exchange, and stock markets. Perfect competition occurs in markets where several firms supply a product or homogenous and standardized merchandise. It also requires the market to be characterized by the low exit and entry costs where the prevailing supplies can only be traded at the set rates while having zero influence on market charges.

The established barriers to entry and exit suggest that some suppliers will be limited from offering homogenous or consistent commodities in the market (Chang 2017). In a perfectly competitive market, many producers avail merchandise subject to the condition that the average total cost associated with supplies is lower compared to the market price. Pure monopoly requires steep barriers to entry. Otherwise, an oligopoly may emerge. When entry barriers are minimal or absent, monopolistic competition exists.

Abnormal (Supernormal) and Normal Profits

Companies may record anomalous or ordinary returns based on the configuration of their respective zones of operation. Supernormal or abnormal profits refer to the proceeds “of a firm over and above what provides its owners with a normal (market equilibrium) return to capital” (Kopel, Lamantia & Szidarovszky 2014, p. 395). Ordinary or normal profits imply the opportunity cost of a proprietor’s resources.

A theoretical model of perfect market competition asserts that firms cannot make nonstandard returns sustainably for long (Bischi, Lamantia & Radi 2015). When other companies realize the concept that particular merchandise can yield anomalous returns, they introduce close substitutes or analogous products. Since no entry obstacles are available in perfect competition settings, an abnormal profit entails an important incentive that results in excessive supplies (Domenico & Lamantia 2016).

Eventually, prices fall, thus eliminating supernormal returns. However, in an imperfect competition such as the case of pure monopoly or oligopoly, nonstandard proceeds may be sustained in the end when firms successfully block the entry of other rivals in a specific market. The next section explains the economic reasoning behind the inability of firms operating under perfect competition settings to realize abnormal profits in the long term whereas monopolistic businesses can effectively make such returns in both the short and long run.

A Monopolistic Business’ Abnormal Profits in both the Short and Long Run

Monopolies have the advantage of economies of scale, a situation that results from the decreasing average total cost (ATC) and the corresponding rise in the quantity required. Bearing in mind that all institutions have various predetermined overheads, the average total charge goes down with an increasing capacity of supply since firms can allocate preset costs to many commodities (Ferrer 2013). However, as the limit for fixed expenses nears, the ATC goes up.

Consequently, when the ATC goes down following a rise in the capacity required, one firm dominates the market since other companies fail to reach the levels acquired by dominant institutions. A declined in the ATC across an entire bazaar leads to the emergence of a natural monopoly (Chang 2017). Graph 1 shows an ATC diagram for a natural monopoly and a competitive business.

From the above illustration, a competitive institution requires substantial investments in fixed assets to augment its manufacturing capacities beyond a particular level. This condition reveals why an ATC curve begins to ascend after reaching a particular minimum limit, which encompasses the state at which the highest turnover can be made in the short-run (Yacob & Allen 2017). For example, a car manufacturer such as Toyota can only produce a particular number of cars, beyond which its manufacturing limit is exceeded, thus compelling it to invest in more fixed assets, including production equipment, if it must boost its production capability.

For a monopolistic company such as Microsoft, specifically, its case of Operating Systems (OS), any number of units can be produced without investing in other fixed assets or requiring it to incur considerable supplementary costs. Such a company deploys strategies that include “patenting, predatory pricing, and company rights to discourage competition” (Chirco, Colombo & Scrimitore 2013, p. 57).

These efforts allow the business to earn supernormal proceeds in the short and long run. Graph 2 demonstrates this possibility. From the diagram, profit maximization is realized at the point where marginal revenues (MR) coincide with marginal costs (MC). In other words, equilibrium occurs at point M where Qm meets Pm. The diagram demonstrates how a monopoly can record supernormal proceeds since the price AR is higher compared to AC.

While this situation occurs in the short run, more institutions end up venturing into the market with time. However, entry obstacles forbid them to the extent that a monopoly continues recording supernormal returns even in the long term. Therefore, the short-run diagram of the relationship between the price, marginal revenues, and the quantity supplied also prevails even in the long term.

Why a Business under Perfect Competition Conditions Only Makes Supernormal Profits in the Short Run and Normal Profits in the Long Term

Competitors have developed long-term products with a utility similar to that developed by a firm, which dominates a new market. Such a strategic decision occurs due to the incentive of earning abnormal or supernormal profits that were previously enjoyed by the nominating institution. Soon after many competitors introduce more products, customers have the choice of buying from many suppliers depending on who has the best price offer.

Therefore, no single company can set a fixed fee for its product. Shostak (2018) supports this assertion by informing that institutions operating in a perfectly competitive market cannot control prices. Rather, they only respond to variations in prices following changes in demand. Here, they either supply more or less depending on whether they can sell at levels above their breakeven point. This situation paves the way for an institution operating under perfect competition to only enjoy normal profits in the long term.

Suppliers do not have to sell at lower prices relative to the market rate since they can trade all the quantity supplied at the prevailing fee as long as a firm’s demand in its market share has not been exhausted. In case one supplier chooses to raise the price, consumers respond by purchasing from other suppliers (Kuksov, Ashutosh & Mohammad 2017). Unlike a corporation operating in a monopolistic market, this condition eliminates the possibility of a company operating in a perfectively competitive market enjoying supernormal proceeds in the long term (Thiel 2014).

Graph 3 demonstrates that under perfectly competitive conditions, industry experiences an increasing supply that matches the growing price. However, increasing prices leads to a reduction in market demand. In the situation where commodities supplied are differentiated in some respect, the market becomes a monopoly. This situation permits suppliers to charge higher rates subject to the availability of a mechanism such as advertising to convince customers to purchase some manufactured goods. Therefore, it can continue to enjoy supernormal profits even in the long term.

For every individual institution, demand is usually perfectly inelastic to the extent that a highly competitive firm supplies any quantity of a product, with the market price remaining constant. As shown in Graph 4, maximizing returns occur after availing quantities at marginal charges. According to Manesh and Karimani (2017, p. 417), this situation occurs when “the cost of producing an additional product is equal to the market price.”

Considering that it is only in the short term that businesses can earn abnormal profits, it becomes important for firms to take full advantage of returns before rival companies join the bazaar, a situation that leads to lower prices and returns. In this case, normal profits prevail in the market. This goal can be accomplished through the total revenue and total cost approach as shown in Graph 5 or by ensuring that a firm increases its output until it reaches a level where the marginal revenue (MR) corresponds to the marginal cost (MC) as shown in Graph 6.

From Graph 5, the first breakeven point occurs when the total cost matches the overall revenue. From this point, business begins to make a profit, which is maximized at the point where the overall charge curve is at its lowest limit (point 3). The corresponding quantity at this point entails the optimal supply capacity of a business beyond, which additional product deliveries require a company to invest in fixed assets, including machinery and human resources. Such fees rise to the extent that the total cost curve crosses the overall revenue line again, thus introducing a second breakeven point (point 2).

From Graph 6, when market prices fall below the ATC, businesses operating under perfectly competitive conditions do not attain returns. However, Manesh and Karimani (2017, p. 419) assert, “If prices are higher than the minimum AVC, firms can minimize losses since the amount of marginal revenue exceeds the variable rate, which can be used to lower the amount incurred from fixed costs.” A shutdown level occurs in case of prices fall below the minimum AVC.

From Graph 6, a portion of the MC curve beyond which shutdown is not witnessed defines the short-term supply line for companies in a completely aggressive market. No company dares to produce below the shutdown level since marginal revenue falls below the average fixed charge. Between the breakeven point and the shutdown level, a company operating under perfectly competitive conditions still enjoys returns since marginal revenue is above the AVC. However, it has to cut down the number of losses. At the breakeven point, it makes normal proceeds. Indeed, in the long term, companies only operate at prices that are just slightly above the breakeven limit because increasing the price may cause clients to buy from competitors.

A company operating under perfect competition conditions can make abnormal proceeds. This situation is only possible for a firm that is introducing a new commodity in a competition-free market. In the short term, when a firm has no rival products, it balances its supply and demand while charging an optimal price for its items to the extent that it enjoys abnormal returns as shown in Graph 7. Customers have no option other than paying top prices for items (Amaldoss ‎2017). From Graph 7, such revenue is only made when companies sell in the short run at prices well above the breakeven level with no fear of competition.

The situation of enjoying high returns in the short-run is altered in the long term when supernormal profits signal competitors to introduce their products to the perfectly competitive market. From Graph 8, the initial short-run price is P₁ since demand (D₁) and supply (S₁) meet at C. Hence, for each company in the market, the MC=MR₁, which is defined by point A. Supernormal or abnormal returns are realized. However, when competition plunges in, excess supplies occur. This shifting occurs until P₂ is reached. At this level, prices fall. Abnormal profits are eroded. Similarly, no incentive is introduced for new firms to venture into the market. Therefore, in the long-term, for a firm operating under perfectly competitive conditions, it is practically impossible to earn supernormal profits unlike the case of monopolistic firms.

Conclusion

Firms operating under perfectly competitive conditions offer homogenous merchandise in the marketplace. In the short term, they may be supplying a product without any form of competition. Here, they can charge higher prices to enjoy top profit margins. However, this situation does not prevail for a long time since abnormal profits made attract other suppliers whereby the supply now exceeds the demand, hence forcing prices to go down. Indeed, the firm that first introduced the product cannot sell it at a high price since consumers may shift to other suppliers unless it differentiates the item.

However, the company starts to operate as a monopoly. Therefore, in the long term, it can only earn normal profits if operating in perfectly competitive conditions. Nevertheless, monopolies can make abnormal profits in both the short and long term since they differentiate their products. They also look for mechanisms for convincing customers to pay higher prices amid the existence of competing products. They also look for strategies for increasing market entry obstacles.

Reference List

Adumyian, K 2013, Monopolies in Armenia, Hrayr Maroukhian Foundation, Yerevan.

Amaldoss, W ‎2017, ‘Reference-dependent utility, product variety, and price competition’, Management Science, vol. 3, no. 2, pp. 1-15.

Azevedo, E & Gottlieb, D 2017, ‘Perfect competition in markets with adverse selection’, Journal of the Econometric Society, vol. 85, no. 1, pp. 67-105.

Boschi, G, Lamantia, F & Radi, D 2015, ‘An evolutionary Cournot model with limited market knowledge’, Journal of Economic Behaviourand Organisation, vol. 116, no. 3, pp. 219-238.

Chang, J 2017, ‘EBay: towards a perfectly competitive market’, International Journal of Economics and Business Research, vol. 9, no. 3, pp. 65-70.

Chirco, A, Colombo, C & Scrimitore, M 2013, ‘Quantity competition, endogenous motives and behavioural heterogeneity’, TheoryandDecision, vol. 74, no.1, pp. 55-74.

Domenico, D & Lamantia, F 2016, ‘Control delegation, information and beliefs in evolutionary oligopolies’, Journal of Evolutionary Economics, vol. 26, no. 5, pp. 1089-1116.

Ferrer, C 2013 ‘Oligopsony-Oligopoly the perfect imperfect competition’, Procedia Economics and Finance, vol. 5, no. 1, pp. 269-278.

Hitt, M, Ireland, D & Hoskisson, R 2013, Strategic management: concepts and cases: competitiveness and globalisation, 10th edn, South-Western Cengage Learning, Mason, OH.

Kopel, M, Lamantia, F & Szidarovszky, F 2014, ‘Evolutionary competition in a mixed market with socially concerned firms’, Journal of Economic DynamicsandControl, vol. 48, no. 3, pp. 394-409.

Kuksov, D, Ashutosh, P & Mohammad, Z 2017, ‘In–store advertising by competitors’, Marketing Science, vol. 36, no. 3, pp. 402-425.

Manesh, S & Karimani, F 2017, ‘Differences between monopoly and perfect competition in providing public transportation (case study: lane no. 10 and 96 of Mashhad bus system)’, International Journal of Economic Management Science, vol. 6, no. 3, pp. 416-424.

Shostak, F 2018, Why perfect competition is not so perfect. Web.

Thiel, P 2014, Competition is for losers. Web.

Yacob, Z & Allen, F 2017, ‘Empirical analysis of profit maximisation and cost minimisation behaviour of Kansas farms’, Applied Economics Letters, vol. 24, no.17, pp. 1255-1258.

Market failure arises in a situation where the outcomes that the market produces are not efficient in meeting the consumers’ needs. Alternatively, it can arise when the market is incapable of meeting the equilibrium. Notably, the market performance depends on the interaction between consumers and produces, government participation, and other externalities.

There are different forms of market failures namely, externalities, existence of public goods, failure of competition, information asymmetry, inequities, and economic recession or swings (Market Failure, n.d.). In this aspect, a detailed analysis of failure in competition is going to be examined. These aspects include in-depth analysis and practicable remedies in the real market.

Failure in competition occurs in a market when there is a sole or a few producers or buyers of a given commodity. This results in accumulation of disproportionate powers thus, disrupting the normal demand and supply of the given product or service. In this situation, price mechanism that involves interaction of supply and demand curves does not determine the prices (Forms of Market Failure, 2012).

For instance, a cartel in the oil industry can decide to package the product at her/his desired quantities for strategic reasons. The cartel does this at will without any influence from the market forces. Another example can be a sole sugar supplier who decides to hoard his/her products then, sells at a time when there is no sugar in the market.

Clearly, the supplier will quote his/her own price, as he/she is not controlled by the market pricing mechanisms. Since there is no alternative or substitute to the products, this situation will force consumers to purchase the products far beyond the expected market price. From this aspect, monopoly or absence of competition in the market leads to clear market failure. In my opinion, failure in competition in a market will give the suppliers and cartels the opportunity to dictate their own prices, which are not in line with the current market trends (Forms of Market Failure, 2012).

On the other front, in a case where there is a sole buyer of a product, it will force the producers to sell their goods far below the real market price. Therefore, failure by the government to intervene and control monopoly in a market, apparently, leads to market failure.

Monopoly, if allowed to continue in a market may lead to exploitation of consumers in terms of high pricing, timely deliverance, and low product quality. In a monopolistic market, it is rare for other companies to enter and offer similar services due to the dominance of the other company. For that matter, there should be solutions that can be adopted to minimize the above scenario.

Firms that misuse their monopolistic powers can work under price controls. Here, the government can set up price controls, where the firm/company agrees with the regulator on the maximum possible price they can levy on their products. A real example is the setting up of the Office of Fair Trading by the United Kingdom’s government.

This body’s sole mandate is to ensure that the prices of essential goods like water and gas are below the present inflation rate (Monopoly Power, n.d.). The government, therefore, should intervene and set up such bodies to monitor price variation of goods or services from monopolistic firms. Apart from this, the government can acquire some parts of the company; for example, acquire about 50% of the company’s shares.

This approach will make the company change tact, even though it will still be the only producer, as it will be under the government’s close watch. It also changes the company ownership from full privately owned to partially privately owned company. The government will ensure that the goods or services offered as are not beyond the consumers reach and not exploiting them.

Additionally, the government can encourage setting up of smaller firms that offer same services. The government can subsidize the initial cost of starting such firms or reduce the procedures of setting up such firms (Monopoly Power, n.d.). When this happens, decentralization of production occurs thus, creating a competitive market that mainly determines its prices through the forces of demand and supply.

For example, the entry of other communication firms in Britain made the British Telecom increase their efficiency and even lower their prices in order to cope up with the current state of competition in the market (Stigler, n.d.).

An example of setting up smaller firms can be seen in the Microsoft dominance in providing both the operating systems and the software. The EU is contemplating of splitting the company into two main wings, that is, the software wing and the operating system wing.

Conclusively, monopolistic markets come with adverse effects to the consumers; therefore, needs immediate government involvement. However, economists argue that monopoly is of great benefit to the producers, as they get higher returns on their investments than when such scenario was not at hand.

Although the producers make a lot of wealth, there is the moral aspect that is not addressed. Therefore, putting the ethical aspects in mind, markets need fair competition to avert the above discussed situations.

References

Forms of Market Failure. (2012). The ICT Regulation Toolkit. Web.

Market Failure. (n.d.). Oxford University Press. Web.

Monopoly Power. (n.d.). Economics Online Home. Web.

Stigler, G. J. (n.d.). Monopoly: The Concise Encyclopedia of Economics | Library of Economics and Liberty. Web.

Show on a diagram of the situation she faced in the period when her club initially took off. Indicate the sort of profits she would be making (it doesn’t have to show the exact figures).

The profits that she can make when operating on this sort of a monopoly curve are P1-P2. The prices that she can sell in the market are P1 and P2. At the price P2, other bars are charging the same price but because she has the only bar with comedians, she has been charging the price P1 for the past period. This has resulted in a supernormal profit as shown by the difference between P1 and P2. Because of the monopoly power she has she can set the profits higher than the rival bars so she can make more profits, (Goodwin, N.M., et al. 2008).

On another diagram, draw in the cost and revenue curves after the new club arrived. Label the profit-maximizing level of output.

With the entry of anew pub offering a similar but differentiated product in the market then the curve for the club belonging to Lucy Reynolds changes to that of monopolistic competition. In this kind of market situation, two firms offer the same product in the market but it is slightly differentiated. The operations in this model are that a recent monopoly will continue enjoying the supernormal profits in the short run. This is shown in the curve above.

After the entry of a new competitor in the market, Lucy Reynolds’ club will continue making profits by offering goods at price P1. This is high as compared to the costs incurred which are at P2/ATC1. In the long run, the club will be forced to adjust the prices they are offering in the short run. The adjustment will reduce the prices offered to P2 where the market operates, (Goodwin, N.M., et al., 2008).

Explain why the revenue curve has shifted and why she is no longer earning a supernormal profit.

This occurs in the long run after the entry of a new similar but differentiated competitor in the market. In the short-run equilibrium, the club has just come out of a monopoly situation. This means that the club maximizes its profits where the marginal revenue is equal to the marginal costs. In the short run before any adjustments, the firm collects the profits based on the average revenue curve, (Hirschery, M.D., 2000).

This situation changes in the long run after the adjustments of the curves due to changes in demand. The shift in the revenue curve is a result of the club still operating at the same marginal cost and marginal revenue as before. However, the club cannot set its prices depending on the average revenue curve due to the decrease in demand.

In the monopolistic situation, the products are differentiated by a small fact so the firms capitalize on this to earn abnormal profits in the short run. The clubs become monopolistic competitors and so they will both earn normal profits in the long run. The changes from the short run to a long-run scenario can result from the entry of new firms or an increase in production costs (Perloff, M.K., 2008). The entry of competing firms reduces the demand for goods in Lucy’s club by moving to the new club.

Both clubs in the long run split the demand hence no club will make an abnormal profit in the long run. If a firm can effectively utilize the short-run profitability then they can maintain it for a longer period by reducing the prices offered if a perceived threat is seen to emerge. This strategy efficiently employs the allocation of resources. This strategy will see the firm remain in profitability and also minimize its average costs. (Richards, F.R.,1998).

What advice would you give her if she began to show a loss? Under what conditions would you suggest she close down and leave town?

In such a scenario as Lucy is in then the market forces present inefficiency in allocation and productivity from resources employed. In many cases, such firms do not have a chance to fully exploit their fixed resources. This presents the inefficiency in production both in the short run and long run, (Wells, K.R., 2009). Due to this exploitation of opportunities then Lucy will start making losses due to the straining economic situations as well as the increased competition. She should close up shop after operating on a fixed profit for some time. To salvage the situation of closing up she should come up with advertising strategies.

Advertising is the best method for firms in the monopolistic competitive market to remain relevant. Advertising will enable her to create a brand name among her customers and probably bring some back to her club.

References

Goodwin, N.M., et al. (2008). Microeconomics in context, 3rd Edition. London: Sharpe.

Hirschery, M.D. (2000). Managerial Economics. New York: McGraw-Hill.

Perloff, M.K. (2008). Microeconomics Theory: Applications in Market Situations. New York: Pearson.

Richards, F.R. (1998). Microeconomics and Behavior, 7th Edition. London: McGraw-Hill.

Wells, K.R. (2009). Microeconomics, 2nd Edition. Washington DC: Anchor.

Introduction

The economists distinguish competition as essential to the economic science. They also say that generally the equilibrium is not competition; the Austrians school of economic thought from time to time confuses the two unlike the other schools of economic thoughts (Blecker, 1989).

The current models policies are argued upon the general equilibrium structure, while mixed interactive agent-based models have been coming up to confront them.

Some economists or in other words competing schools of economic thought which may include the neoclassical , post-Keynesian, Australian, and some other institutional economists all embrace the position that disagree on basics (Samuelson,1947).

The Post Keynesian economic thought argued that even if a theoretical pure competitive market circumstances that may include instantaneously flexible wages and prices existed this would not without human intervention achieve a full employment general equilibrium in the money-based economy (Bowles & Boyer, 1990).

Therefore the differentiation of products hinders competition because this makes the competitive entrance so costly. To make it more precise neoclassical economic school of thought makes it clear that main automobile companies transform styles probably each year thus increasing the operating cost of competing in this business.

Probable competitors might be willing and in a position to undertake the same or similar measures, moreover they simply cannot contend. Alternatively—indeed, on the other hand—the economies of scale also limit the competition.

Considering the fact that most definite firms take in lower costs per unit cost due to huge volumes this enables the them to hinder the smaller growing firms, or smaller potential entrants, from entering into the market (Samuelson, 1948). This is because those efficient and well established firms can never compete with the new up coming ones.

The neoclassical school of thought is said to have gotten the issue precisely and completely toward the rear. This is because the consumers will find the resources allocated pleasingly that also likely competitors find it hard or impossible to enter into the market.

Always the product differentiation, in particular that does increase the prices, can sometimes act as a barrier to entry that is if purchasers desire that segregation and pay most probably higher prices linked with, the new yearly auto styles.

On the other hand when buyers do not choose such segregations and, instead, recognize the firms that alter styles not as much or never at all, then manufactured goods differentiation here hardly acts as a barrier to the aggressive entry.

Through econometric analysis of the economic theories, the post Keynesian and the classical models provided reasonably good description of profit differential while the neoclassical performed the worst among the three.

Linking the classical and the post-Keynesian models, we discover that the classical is further consistent with the phenomena that it is intended to clarify. To conclude a hybrid model combining variables from the three unconventional theories displays the main explanatory influence (Lance, 1985).

There are usually two avenues of criticism that one may take with reverence to the neoclassical monopoly theory. Within the first consign, one may criticize the purely competitive model which is taken as a point of reference and as a foundation of comparison with monopolistic situations.

Also criticisms on the whole notion of non-legal barriers to entry can be applied, disagreeing, instead, that it is simply the customer preference that limits the competition and that, therefore no misallocation of income occurs. In many cases economists tend to agree that pure competition is not really feasible (Marc, 1992).

Most likely reluctantly, that it may not even be pleasing or optimal if it might be real. This is there are few economists who noticed and emphasized the critical rule of the purely competitive model, distinctively, that it is not a descrip­tion of rivalry at all.

The pure competition is believed to be stationary, whose equilib­rium condition and the assumptions are such that the competi­tive process is lined out by meaning.

Or to be more precise, though pure competition may illustrate the absolute out­come of a exacting competitive situation, the critical end consequence, it does not explain the competitive procedure that produced that significant outcome. Therefore purely competitive theory is not a speculation of competition as it is said to be.

The neoclassical tradition of perplexing competitive procedure with a final, fixed equilibrium state makes for gross errors and mistakes in the economic scrutiny.

For instance, the product demarcation, adver­tising, the price competition as well as including price discrimination and modernization are somewhat more often than not fated as monopolistic and therefore as resource misallocating and socially unfavorable.

This criticism follow reasonably because not one of these activities is probable under purely competitive circumstances. Consequently the whole thing that is truly competitive in the present world, beyond doubt rivalries’, gets labeled as monopolistic and possessions misallocating in the Alice-in-Wonderland, solely spirited humankind (Josef, 1952).

Therefore the investigative conclusions one is always strained to come to, is taking into account the purely competitive point of view, are not just mistaken, unrealistic, but very contrary to the truth.

Then being extreme to forecast or, tell something meaningful concerning to the competitive behavior, the pure competition can only give explanation on what things would be like if really the globe contained zombie-like purchasers with homogeneous tastes and preferences, atomistic ally spontaneous firms indistinguishable in every significant respect, actually with no vocational advantages, no ad­vertising within the firm, no free enterprise, and no rivalry (Elgar & Kaldor, 1960).

Without doubt this is the major imperfection and meaninglessness inherent in the purely com­petitive point of view.

The Neoclassical and Austrian theories

When comparing neoclassical economic school of thought with the Austrian economics it is essential to be on familiar terms with the Austrian economics which is normally a school within the broader custom of neoclassical economics according to the history.

The Austrian economics, unlike the Post-Keynesianism, is not profane in certain basic respects. In contrast, with regard to what neoclassical economics has turned out to be and the manner that the unique marginal’s project is now explicit within the conventional, the Austrian economics is every bit as sacrilegious as any of the alternative schools of thought mentioned in the discussion above.

The two-pronged aspect of the Austrian economics leads to numerous tensions within the school that is both theoretical and empirical. The standard neoclassical economics occupies the first category. When assuming the firm to be having perfect information, neoclassical economics in this context reflect on some simple problem situations.

The theory again addresses how perfectly informed persons act to make best use of profits or minimize costs given their vital work, Fernandez & Rodrik (1991) further argued that given uncertainty concerning the allocation of gains and losses of management policy, agents may be over cynical on the subject of policy changes.

Post Keynesian and Neoclasical

While Post Keynesian convinced cost constraints on their behavior. The Neoclassical economics customarily illustrates the capability of markets to conquer simple predicament situations and achieving static condition (Weintraub, 2002).

The neoclassical greatest accomplishment is that it has provided a accurate manifestation that under these rarified circumstances resource allocation will always be Pareto optimal. Also like the neoclassical economics, the post Keynesian political economy can also be said to facade a straightforward problem situations for persons.

On the side of neoclassicists, however, post Keynesian theory argue that the market economy does not produce social accord.Keynesian theory , from the judgment of equilibrium theorizing, still raises up the troubles of monopoly and commerce cycles that are within this structure endemic to capitalism.

On the contrary to the above mentioned approaches, the Post Keynesian economics again considers economic actors who tackle difficult problem situations. Then issues concerning imperfect information and all the uncertainties move to the front position of such analysis and better-off more problematical obstacles turn out to be the focus.

The post Keynesian approaches have established the market’s inability to carry out or perform effectively when encountered by such problem situations and in this sense split with the neoclassical approach the conviction that markets are laying face down to inefficient end results.

The nature of economics authenticity defies the argotic theories of the neoclassical stability and thus produces outcomes outrageously diverse from what the standard economic models could forecast.

Criticisms

The elementary difference involving Post Keynesian theory and that of Neoclassicism is that the previous assumes that economic agents operate in a surroundings of uncertainty, while the final is premised on perfect forethought.

This difference means that in the Post Keynesian economics, the extended durations of less than full employment are as result of insufficient aggregate demand. While the Neoclassicism, in contrast, believe there at all times exists adequate or satisfactory demand to buy all output presented for sale.

Since the system is or else completely determined, the monetary and financial side of the macroeconomics acts no role in the standard neoclassical approach. There fore it is not essential to know the interest rates, the prices, and money supplies to know the long-run level of output and service that will prevail in general and in every manufacturing.

According to the Post Keynesianism, now that it is possible for collective quantity demanded to fall short or decrease of the quantity flourishing there is no promise that all those who would like to be employed at the current earnings rate will find service (Gordon, 1993).

Within these surroundings, financial variables are decisive, as are the interest rates and workers emotions are always toward liquidity. When workers transfer toward a more liquid ways of saving, for instance, so then the service suffers. This again spaces the economy on a latest growth path and consequently constrains future choices.

Therefore the previous affects the future and currency matters in both the short and long run. It is then for these reasons that neoclassical attempts to give details on exchange rate have focused on the real side of the economy while Post Keynesians put into consideration portfolio capital or income flows.

Also the financial investment comprises the awesome majority of international economic dealings is clear to both sides; the Neoclassicism theory, however, views this in different perspective and refers to this as the white noise or, on the other hand, simply the progression by which trade flows make themselves to be felt (Hicks, 1979).

The Post Keynesian point of view explains investment capital as being a force unto itself, and also capable of being a self-determining agent changing the economy onto a new direction or track. Then long run is said to be dependent of monetary factors.

Conclusion

Pure competition is not in reality possible according to most economists. While some would agree, possibly unenthusiastically that it may not even be pleasing or optimal if it may possibly exist.

Although other few economists have recognized or emphasized the essential imperfection of the purely competitive form that is to say, that it is not a explanation of competition in any way (Dutt, 1989).Therefore pure competition is a stagnant, equilibrium state whose very assumptions are such that competitive practice is ruled out by description.

Or else to put the matter more considerately and precise while pure competition may perhaps illustrate the final outcome of a challenging competitive situation, the eventual end result of outcomes , may not describe the competitive procedure that produced that particular result.

There fore making it that a purely competitive theory is not a speculation of competition per se.The post Keynesian theory evinces a practical contradiction.

While on the other hand, it illustrates a far and a higher attention in questions of line of attack than any other school of economic thought discussed with the probable exception of the Austrian school of economic thought and it has at all times been highly critical of the procedural foundations of the rival economic school of thought, to be specific the Neoclassical school of economic thought.

Nevertheless on the other hand, the Post Keynesian School of economic thought has not accepted the procedural fundamentals of its own (Dutt, 1984).

With the Post Keynesian School of economic thought having been defined predominantly by its disagreement to neoclassical examination or in other words analysis, the students are unable to comprehend sacrilegious economics until when they are able to learn what it is not.

Still then, realizing why a substitute or an alternative exists, leave alone is desirable, requires the understanding and shortcomings of the neoclassical school of economic thought analysis to a considerable degree of complication.

Elgar & Kaldor (1960) argued that using the Marx’s Commodity Axioms, the Post Keynesian School of economic thought can be favorably notable from its neoclassical theory rival at the very early beginning of a student’s introduction to economics.

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Elgar, E & Kaldor, N, 1960, Alternative Theories of Distribution, Review of Economic Studies, 23, 2: 83-100 Glyn, A, Hughes.

Gordon, D, 1993, Putting Heterodox Macro to the Test: Comparing Post-Keynesian, Marxian and Social Structuralist Macro econometric Models for the Postwar US Economy. Working Paper No. 43 New School for Social Research; published in Glick.

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Weintraub, E 2002, How Economics Became a Mathematical Science, Durham: Duke

Introduction

Competition in any sector of the economy is beneficial both to the consumer and to the government. It is through fair competition that consumers are provided with choices and hence increased quality of products. However, companies always want to dominate the market share. To achieve this goal, some companies use unfair practices to edge competitors out of the market. Some of these unfair competition practices include unsustainable low prices, conspiracy to set prices that hurt competitors, or even limit production to influence rise in prices (Paul, Cadle and Yeates, 2010).

As companies gear up to compete over the dwindling size of customers, many companies are getting into unfair competition methods (Rossi and Volpin, 2004). While the competitive environment is conducive for the benefits of consumers, companies can employ tactics like unreasonable and highly subsidized prices to hurt competitors (Hilty and Henning-Bodewig, 2007). These prices may not be sustainable over a period of time. The goal of such a move is to woo customers into consuming products or services of the company at the expense of other companies.

While the objective of companies is to make profits, markets must be regulated by a neutral body so that companies do not result in unfair competition practices (Jones and Sufrin, 2008). These regulatory bodies comprise of players in the industry as well as government agencies. If competition is allowed to take its natural course, companies may be hurt each other through reduced revenues and hence reduced remittances to the government in terms of taxes and levies.

Beside, unfair competition techniques where a company lowers prices of products to unsustainable levels, other malpractices could include competing companies hoarding product(s) while anticipating rise in products’ prices. This causes an artificial shortage in the market. Due to forces of demand and supply, prices increase hence hurting consumers and denying government revenues.(Rossi and Volpin, 2004).

Other companies may form cartels, therefore, excluding other rival companies. These companies employ unjust trading techniques such as conspiracy to fix prices that may end up hurting other dominating players in the market (Fernando, 2010). If a section of companies that are competing ‘gang’ up against other companies without a neutral regulator, the market sector is likely to be hurt. Other unfair practices include putting unjust trading conditions that tie customers to the company or limiting production. For instance, in the telecommunication sector, companies have been seen to use unfair trading methods, where they limit the movement of customers into other networks through unfair conditions (Acutt and Elliott, 2001).

When there are few players in the sector, there is a real danger of the players conspiring to raise the prices at the expense of consumers. This is one of the effects of oligopoly. Consumer protection bodies must be ready to deal with such malpractices that may hurt the market (Hilty and Henning-Bodewig, 2007). Other practices that lead to the unfair competition are when companies agree to limit their production to cause an artificial shortage in the market. It is the duty of regulatory bodies to set rules and regulations that guide operations in the sector and evaluate how unfair competition is likely to hurt the market (Connor, 2008).

Regulation of unfair competition from mergers and acquisition in the UK

In the United Kingdom, regulations guiding competition in the market are set by the Office of Fair Trading (OFT) and Competition Commission (CC). The rules guide healthy competition between companies. In the Competition Act, 1998, businesses are prohibited by law from using uncouth practices that are not aimed at ensuring a competitive atmosphere within the sector (Hemphill, 2004). Companies are required to use fair methods like improvement of product, enthusiastic advertising, and promotional techniques without hurting other competing companies. According to the Act, competing companies are not supposed to form price cartels or conspire to fix prices, or discriminate between customers based on consumer segmentation (Dash, 2010).

On the other hand, a dominating company can use its position to control the market and therefore push competitors out of the market. According to the Competition Act, the law applies to companies that control more than 40 percent of the market share. OFT has powers to investigate and punish companies that may end practicing unfair trading practices. Both OFT and Member States’ National Competition Authorities (NCA) impose penalties to companies that may show tendencies to employ unfair competition practices. Penalties can include individual punishment to its directors or fines based on the global turnover of the companies (Fernando, 2010). Companies that are hurt by unfair competition are also allowed by law to sue the other company for unfair competition practices.

Regulatory body, OFT, acts on complains from players in the sector. Companies may not expressly agree to hurt their competitors but can act making trading fairly difficult (Motta, 2007). There are signs that show a company is applying unfair competition practices. Among the fair practices that a company can use to attract customers could promotional techniques like discounts and commissions, rewarding loyal customers, among many others (Rush and Ottley, 2006). However, there are other practices that point towards unfair competition. Companies can block new entrants into the market by controlling the suppliers. Competing companies definitely require similar raw materials for the products. However, companies that are established and dominate the sector can prevent suppliers from availing raw materials to other competing companies (Jones and Sufrin, 2008). Secondly, OFT and CC consider cases where companies lower prices such that charged cost is not able to cover the cost of production, as unfair trading practice. Thirdly, is formation of cartels. Cartels are companies that agree to cooperate instead of competing at the expense of consumers and other competitors (Paul, Cadle and Yeates, 2010). Cartels are responsible for fixing prices, agreement to limit production to increase the prices or market sharing.

OFT consider these serious offenses and can lead to heavy fines by the companies that are practicing these techniques. Competition can be reduced if competing companies form mergers or buy other competing companies in acquisitions (Moore, 2004). These techniques reduce players in the market and can lead to partial oligopoly (Waterson, 2003).

Mergers are when two or more companies producing similar product form a joint business venture (Connor, 2008). Mergers can be good in reducing production cost and improve efficiency of service delivery. But if a market sector does not have many competitors, mergers would definitely hurt consumers. Mergers in such a case will lead to higher prices, reduced quality of products and constrained choices of products by consumers. Mergers can also lead to monopolistic economy (De Vrey, 2006). In a monopoly, the sole company in the sector sets the price and hence consumers have no choice but to abide with company conditions even when the same product or service can be gotten at a lower price (Waterson, 2003).

When a business merges with a rival (horizontal mergers), the companies produce products that satisfy similar needs of consumers. For instance when Glaxo and SmithKline merged, they did not cause any unfair competition in the market because there were many players in the medicines and drugs market. Or when Gales was acquired by Fuller’s, the market was not tilted to affect consumers because there are many players in the beer brewing sector. However when a business acquires another in a different distribution chain, this is considered to be vertical mergers. For instance when Ford Motor Vehicle company acquired Hertz Driving School was an example of vertical merger.

It is the work of OFT and CC to ensure that the market is not affected by either acquisitions or mergers. OFT advises against mergers that are likely to substantially reduce competition in the market (Rodger and MacCulloch, 2008). It is the duty of Competition Commission to turn down a request for merger if such a move does not improve the market but ends up hurting it. However, Secretary of State can also refer a case of merger to CC if such a joint venture is likely to hurt the security of the sate or cause instability in the financial systems. Though it is not expressly stated that companies must notify OFT before mergers, it is appropriate to notify the body to avoid pitfalls that may result from lawsuits of unfair competition practices. It is only these notifications that OFT use to evaluate whether such a merger would reduce competition in the sector (Cini and McGowan, 1998). Under the Enterprise Act 2002, OFT review mergers to establish the venture would lead to substantial lessening of competition. However, mergers may not be considered as being unhealthy if there is no company that complains to the OFT (Cini and McGowan, 1998).

After merging, companies cease to operate as competing entities and therefore operate under common leadership. Many mergers of small companies may not be referred to OFT for investigation. Mergers can only be investigated if they meet set criteria which include if the business being taken over has more than £70 million in turnover of controls or if two merging companies control more than 25 per cent of the market share (Cini and McGowan, 1998).

Enforcement of competition rules and regulations

When Competition Commission replaced the Monopolies and Mergers Commission in 1999, following the enactment of Competition Act 1998 and Enterprise Act 2002, competition issues were clearly defined (Rodger and MacCulloch, 2008). The commission was empowered to investigate mergers in respect to the effect on the economy, other competing companies and customers. The Enterprise Act also gave remedial powers allowing companies to take actions to improve competition.

Among unfair competitive practices include predatory pricing (unsustainable low prices aimed at pushing other competitors out of the market), excessive pricing (dominant players can increase prices unreasonably with no relation to the economic value of the products), fidelity rebates (when a dominant company rewards customers through discounts or rebates to retain them) and unreasonable refusal to supply (cutting off supplies without offering a convincing reason for the action) (Hemphill, 2004).

The UK’s Enterprise Act allows OFT to investigate market players and their effect on competition if mergers are effected. Companies are then referred to the CC for further investigations. It is the duty of CC to indicate whether mergers or acquisitions may distort or restrict competition in the sector (Hilty and Henning-Bodewig, 2007). Secret price-fixing and market sharing cartels are considered serious infringements under the laws governing competition in the European Union market (Motta, 2007). Due to negotiated trade agreements, companies from member countries are expected to adhere to the set rules and regulation that ensure fair competition among the players in a particular sector (Rush and Ottley, 2006). Companies dominating a particular sector are prohibited from exploiting their market muscle hence hurting trade in other member countries.

The Competition Commission (CC) ensures that industries are regulated to facilitate healthy competition among players in a particular sector (Cartwright and Schoenberg, 2006). According to the UK economic regulators report, under Enterprise Act 2002, OFT is mandated to review mergers with a view to establishing whether they affect competitive nature of the market. If a merger contravenes tenets of fair competition, OFT can prevent the merger from going ahead. This is meant to safe-guard the interests of consumers as well as ensuring the health of the market in the member countries within European Union (Accut and Elliott, 2001). For instance, if a merger in France affects fair competition in Germany, then the European Commission can stop the merger in the interest of member countries. Through negotiated trade agreements, member countries are required to adhere to the rules and regulations governing mergers and acquisitions.

Mergers are not necessarily between competing companies. As in vertical mergers and acquisitions, companies may merge even when they are producing competing products (Parr et al, 2005). Vertical mergers are unlikely going to lead to Substantial Lessening of Competition, but may benefit from efficiency in distribution of complementary products or services. However, vertical mergers can affect companies in merged companies if the competing ones do not have the capacity of the acquiring company (Worthington and Britton, 2009). In horizontal mergers, competition is reduced. This leads to fewer players in the market and constrained production. If the demand of products remain the same, prices of commodities or services is likely to shoot up hence affecting the consumers.

OFT and CC consider constrained production effect when investigating mergers and their effects in the market. Mergers cause unilateral effects leading to little choice of alternative products for consumers, increase in prices due to economies of scale with merged companies and therefore it becomes difficult for competing companies to respond to price increases without affecting their sales. Mergers eliminate or lessen competitive force in the market or lead to reduction of competitors hence consumers needs are not adequately addressed (Accut and Elliott, 2001).

While mergers may improve efficiencies, they can also hurt other competing companies. This may end up preventing new entrants into the market. Merged companies enjoy economies of scale and hence can afford to lower prices which other companies cannot sustainably recommend. Mergers can affect customers if such ventures reduce the choice of products due to the merging of competing or subordinate companies. Regionally, European Commission enforces competition rules. Member States National Competing Authorities like OFT and CC in UK, are mandated to enforce European competition rules (Rodger and MacCulloch, 2008). However, these rules do not hold individuals within a particular company liable for prosecution or other disciplinary measures. Through NCAs, member states can institute disciplinary proceeding targeting the company’s leadership that has breached governing rules.

Recommendations

Competition in any market is healthy. However, regulatory bodies act on competition malpractices depending on the complains they get in the sector. This means that if there are no companies that are ready to come out to oppose unfair competition practices, then regulatory bodies like EC, CC and OFT may not act on them. Being public bodies these institutions should be proactive in the interest of customers. Waiting for complains from competitors, can sometimes be counterproductive when companies are not ready to raise those complains or few players in an industry conspire to act unfairly for their advantage at the expense of customers. This means that consumers will continue to suffer in the hands of unscrupulous businesses.

Being market regulators of unfair competition OFT, CC and EC should institute investigations whenever there are mergers or acquisitions to safe guard the interests of customers. When unfair competition affect companies from other countries, individual directors should as well be held to account for malpractices in their companies where mergers, acquisitions or joint ventures leads to unfair competition in the sector and the region.

Conclusion

Companies are in business to make profits. One of the techniques to secure a large profit margin is to have a larger market share. Companies can result to mergers, acquisitions and joint ventures in an effort to reduce operating costs as well as utilize benefits of economies of scale. These mergers and acquisitions tilt the balance of competition in the sector. Consumers have fewer choices. These are actions that can hurt the economy if these ventures lead to Substantial Lessening of Competition. In controlling dynamics within business environment, a neutral body oversees the mergers and acquisitions.

In UK, CC and OFT are empowered by law through Enterprise Act 2002 to oversee mergers, acquisitions and joint ventures in a bid to control unfair competition practices. These independent public bodies are subject to the agreements of the region’s European Commission that require member countries to practice fair competition practices that do not hurt businesses from other member countries.

Regulatory bodies are mandated to check on unfair competition practices that may end up hurting businesses and economy, disenfranchising customers through exploitation with exorbitant prices, or unfairly locking out other competitors from business.

Under the European Commission each country must have its National Competition Authority as an independent body to oversee mergers and acquisitions. There are two types of mergers that these authorities must investigate to evaluate their impact in the market: horizontal and vertical mergers. In horizontal mergers, two companies producing competing products form an independent company, while vertical mergers refer to mergers of different companies producing different but complementary products or services. Regulatory bodies can grant or block mergers or acquisition depending on the impact such a move is likely to have on the entire market.

List of References

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Cartwright, S and Schoenberg, R. (2006). Thirty years of mergers and acquisitions research: Recent advances and future opportunities. British Journal of Management. Vol. 17, Issue S1, S1-S5.

Cini, M and McGowan, L. (1998). Competition policy in the European Union. New York: St. Martin’s Press.

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Dash, P. (2010). Mergers and acquisitions. New Delhi: I.K. International Publication House.

De Vrey, R. (2006). Towards a European unfair competition law: a clash between legal families: a comparative study of English, German and Dutch law in light of existing European and international legal instruments. Martinus Nijhoff, Boston: Leiden.

Fernando, A. (2010). Business ethics and corporate governance. New Delhi: Dorling Kindersley.

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Hilty, R. and Henning-Bodewig, F. (2007). Law against unfair competition: towards a new paradigm in Europe? Berlin: Springer.

Jones, A and Sufrin, B. (2008). EC competition law: text, cases and materials. Oxford: Oxford University Press.

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Motta, M. (2007). Competition policy: theory and practice. Cambridge: Cambridge University Press.

Parr, N, et al. (2005). UK merger control: law and practice. London: Sweet and Maxwell.

Paul, D., Cadle, J and Yeates, D. (2010). Business analysis, 2nd ed., Swindon: British Informatics Society.

Rodger, B. and MacCulloch, A. (2008). Competition law and policy in the EC and UK. London: Taylor and Francis.

Rossi, S and Volpin, P. (2004). Cross-country determinants of mergers and acquisitions. London Business School. Vol. 74, Issue 2, 277-304.

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Waterson, M. (2003). The role of consumers in competition and competition policy. International journal of Industrial Organization. Vol 21. Issue no. 2 129-150.

Worthington, I. and Britton, C. (2009). The business environment, 6^th ed., Harlow: Financial Times Prentice Hall.