Antitrust Failure of the Firm to Increase Term Paper
- Length: 8 pages
- Subject: Economics
- Type: Term Paper
- Paper: #71114641
- Related Topic: Antitrust Practices, Profit Maximization, Plastic Surgery
Excerpt from Term Paper :
AntitrustFailure of the Firm to Increase Market Power through the Merger
Merging refers to a corporate combination of two or more independent companies into one enterprise. A merge can take various forms such as a dominant firm purchasing the shares of another or a mutual agreement by two rival firms to cut unhealthy competition between them. The forms of mergers between companies can be horizontal, vertical or market extensional. The form of merger in our case is horizontal because the two rival firms produce the same commodities and serve the same market. The aim of this merger is to reduce rivalry and increase market power for both companies. The merger did not produce the intended purpose, and as a result, our company has not increased its market power. The aims of the merger were also to increase market efficiency, market extension, eliminate competition from other companies within the industry and cut down operational costs such as taxation. The intention of the merger was also to increase products and service diversification.
In contrast to the high expectations by our company that the merger will be beneficial, the merger does not prove to bring significant benefits to the company. There is an insignificant difference in terms of the market power and product diversification from the period before the merger and after the merger. In contrast to the expectations of FTC, This merger has not increased the market power for the two companies. Each party to the merger does not testify increased benefits from the merge, and in a further analysis, the merger produces various costs for both companies. There are many factors contributing to the failure of this merger. The difference in corporate cultures between the two companies is a major factor contributing to the failure of the merger (Straub, 2007).
The merger ignored the difference in the corporate cultures and focused on the product and market power that each company will benefit from merging. Corporate cultures such as personnel issues are not easy to overcome when a new management comes in and set new rules and regulations. These personnel issues and work environment have resulted in resentments, in our company, and shrinking in productivity. Studies by Straub (2007) show that, the changes brought by mergers are often not easy to integrate with the old system of a company and they result in a drastic drop in the motivation to work productively. The merger produces negative outcomes due to the much attention driven towards cutting costs while neglecting the day-to-day business activities. This prompts customers of the company to flee and consequently a loss in revenues and a failure to meet expectations of shareholders. The merger fails to achieve its goals due to poor governance and poor communication. The merger lacks clarity on decision-making processes and resolution of issues. Irrelevant communication processes and lack of conviction to key stakeholders on the benefits of the merger all contribute to the failure of the merger.
Slow decision-making and poor resolution of issues are an outcome of weak leadership in the merger. Behaviors and ways of working by the managers in the merger do not match the vision and strategies of the merger. In relation to all these problems and lack of dedication by the merging companies towards building a strong merger, our company seeks to withdraw from the merger. Arriving at this decision has taken consideration of many factors, which prove that the merger is not beneficial to our company. The company has not achieved its expectations from the merger and intends to seek a more beneficial and comprehensive form of business integration.
2 Inelastic Price Demand for Plastic Surgery
Inelastic price demand for plastic surgery shows that changes in price do not affect the demand for plastic surgery. In such a situation, a seller can increase the price of plastic surgery without affecting its demand. When the price of plastic surgery rises, the number of operations does not reduce. Price inelastic demand will not cause a reduction in the number of operations. The inelastic price demand takes place in the case of luxury commodities or in commodities that are basic for survival. Addictive commodities such as cigarettes or alcohol also face inelastic price demand. In our case, plastic surgery is both a luxury and a basic commodity. Increasing the price of plastic surgery will not cause a reduction in the number of operations. This is because some people need it for survival especially in medical practice while others need it as a luxury commodity to improve the beauty. In relation to this explanation, the statement is false. When the price of plastic surgery increases, the number of operations will not decrease.
Increasing the price of plastic surgery by a certain percent will not result in the same percentage change, in the quantity of plastic surgery demanded. It is true that a percentage change in the price of plastic surgery is less than the percentage change in the quantity demanded. This occurs in basic and luxury commodities where increasing the price of the commodities results in insignificant changes in the quantity demanded. Consumers will reduce consumption of such commodities by a small percentage due to an increase in the prices. Plastic surgery faces price inelastic demand because it is both a basic and a luxurious commodity. In relation to this explanation, the statement is true.
In relation to the type of commodity, the price is inelastic because consumers will always buy it no matter the price level. However, increasing the price of plastic surgery by a certain percentage does not result in the same percentage change, in the number of operations. The number of operations will not reduce in the same percentage as the increase in prices of plastic surgery. The statement is not true because, the changes in price negatively affect the number of operations but not in the same percentage as the increase in prices of plastic surgery.
Quantity of plastic surgery demanded is not quite responsive to the changes in price. The demand is price inelastic, therefore; consumers will continue to consume the commodity irrespective of price changes. The percentage change in price is not equal to the change in demand for the commodity. In relation to this statement, the statement is false. Price inelasticity of demand does not allow responsiveness to changes in demand when prices change.
Marginal revenue refers to income incurred by a producer due to additional production. When a commodity faces inelastic price demand, additional operations will result in extra benefits for the seller. This is because the seller has the ability to change prices without affecting the demand for plastic surgery. Additional operations will result in marginal revenues for the business as long as the business can increase the prices of commodities without affecting the demand. This explanation proves the statement false. The marginal revenue of another operation is not negative.
3 SEC Regulations on U.S Corporations
SEC regulations require corporations to publish their operating activities on a quarterly basis. This contradicts the Friedman theory of the firm, which required firms to maximize shareholders' wealth over the long-term. Friedman does not specify the long period and how this maximization of wealth can take place. Given the number of activities that a firm may pursue and the regular changes in the market economy, it is easy for a firm to divert from its main objective of maximizing shareholders' wealth. A firm may divert attention to maximizing managerial wealth instead of the shareholders' wealth. SEC observes this problem and requires U.S. corporations to publish their activities on a quarterly basis rather than on an annual basis as explained by the Friedman theory of the firm article. Publishing corporations' activities on a quarterly basis help to trace accountability of managers and ensure a firm adheres to industry rules and regulations.
The SEC regulations contradict the Friedman theory of the firm by requiring firms to not only consider shareholder wealth maximization but also be accountable to the society around the firm. Accountability to the society give rise to corporate social responsibility which Friedman did no support. According to Friedman's theory of the firm, organizations should only focus on shareholder wealth maximization because social responsibility will divert resources meant to increase wealth by giving back to the society. According to studies by Banerjee (2009), corporations should only focus on shareholders wealth because social responsibility steals from the shareholders' wealth. The short time frame suggested by the SEC is important because it facilitates easy tracing of a corporation's operating activity if they comply with the main goal of profit maximization. The short-term period helps to eliminate unforeseen events that negatively affect the profit maximization goals of the firm.
The SEC should not change the regulations to allow only annual reporting by corporations. Short-term frame is crucial in inspecting the trends of corporations and making adjustments before it becomes too late. Quarterly publications of operating activities improve transparency to shareholders and help them to determine whether the firm will produce the expected…
