Regulation of Mergers Government Regulation of Mergers

Regulation of Mergers

Government regulation of mergers and expansion in the smartphone operating systems market primarily protects consumers and encourages free market competition. There are antitrust laws that protect wireless consumers and promote competition against monopolistic practices.

Simply put government regulation is needed to allow more competitors to enter the market. Therefore offering consumers more innovative smartphone operating system choices and options.

Another advantage of regulation is to ensure pricing of products is not overly burdensome to consumers or generating an unreasonable profit for the corporations involved.

Mergers should not unfairly take advantage of consumers or force them to use their products or services due to dominating by monopolistic strategies.

Intervention of Government in Mergers

The rational of the Department of Justice overseeing regulations concerning mergers of corporations is to ensure free or open market competition (Stewart, 2011). This allows multiple software companies to develop new technological products that differentiate smartphones from one another. Thereby giving consumers multiple pricing options and the ability to choose the features and services they want.

The first step is to apply the Herfindahl Hirschman Index (HHI), a mathematic formula used to determine the effect of a merger on competition (Stewart, 2011).

This formula has been applied to potential merging corporations since 1982 in order to measure the effect on market competition. The results are a guideline based on a scale of up to 10,000 points. The high end being an indicator of a perfect monopoly (Stewart, 2011). Under President Bush the median score was 1,800 and above which meant that the industry was fairly concentrated. If the merger added 100 points then the industry would reach an anti-competitive level. However, under President Obama the median score was raised to 2,500 and the merger qualifier raised to 200 points (Stewart, 2011). This increase in the HHI makes it slightly easier for a merger to pass the qualifier.

Expanding Markets and Alternate Strategies

Alternative strategies based on threats to the industry should be considered in order to expand market reach.

Horizontal mergers allows two competitors say Google Android and Apple to join selected assets and consolidate operations (West and Mace, 2007). This would be advantageous for the firms alone. Such a merger would only benefit the companies and not consumers as it would be considered a price-taker according to (Michaels, 2011). Since the price structure would most likely remain the same, the main benefit of the merger is to reduce operating costs.

In a vertical merger the industry must produce a product through several stages of production. In the case of smartphone operating systems, the Google Android and Apple iPhone have the added stage of software applications or apps that offer many business and personal features to their wireless services (West and Mace, 2007). Such a merger would allow cross functional uses of the many thousands of applications that each firm has within its own service offering. However first a look at how to make these options available and the necessary technologies needed to add this functionality must be analyzed and examined by stakeholders in the company.

Capital and Different Forces Affecting Markets

If a company decides to expand based on capital markets the stakeholders must consider the effect on capital and stock price in addition to current operations. By deciding to sell more shares through the initial public offering (IPO) or selling of additional shares, capital can be raised for expansion such as Research and Development (Michaels, 2011).

Sell of stock makes huge amounts of capital available to the company from investors hoping to gain dividends as a return on their investment. For a capital project to be successful, the company must find a way to capture a new market or cause present target consumers to lengthen contracts, or add more products increasing sales margins (Michaels, 2011). With the addition of more capital, is the hope of discovering innovative technological advances in telecommunications and smartphone operating systems that will further differentiate the product from the competition. Thereby offering the consumer a unique competitive advantage such as seamless integration between Apple products (iPad, iPhone, iPod, and desktop), for example. Where the competition namely Android struggled at first to come up to speed with the release of the iPad tablet technology, Apple already had thousands of compatible apps on the iPhone that were quickly integrated for use on the iPad tablet (Tabletpcdevices, 2010). Competing open market suppliers that created apps for iPhone were all too eager to upgrade and update their software to comply with the newest Apple device. While Android lagged behind for several months as the tablets of competitors such as Visio and Amazon Kindle waited for them to come out with compatible applications (TabletPCDevices, 2010).

If the company decides to borrow money in the hope of funding a new innovation that is expected to increase stock price, market share and profits. The interest rate will play a part in the return to the firm. If the borrower believes in the firm's ability to repay the loan the interest rate may be more favorable, compared to a company that may have a track record of risky investments. Inflation can occur if the lender considers the loan a risk and will adjust the interest rates to hedge against losing capital in the ability of the firm to repay.

Changes in Economic Trends

Right now smartphone and wireless industry platforms have allowed Google Android, Apple and numerous competitors to design applications for many business uses. One of these is Square Trade who has designed a small device for anyone with a smartphone access to instant credit card processing. This simple credit card device that costs pennies for small businesses that need to process credit cards could over time disrupt major credit card merchants. Companies such as Paypal, and even ATM and credit card companies such as Chase Visa Merchant processing and others are affected. As more people pay less fees by running their credit cards on their smartphones using the Square Trade device, this could totally affect the industry of credit card and merchant processing.

Interest of Shareholders and Management

Innovation is in the best interest of shareholders and managers who converge on the side of R & D. when it has the promise of increasing profits. When a new idea such as the smartphone applications for use on iPad, kindle, and other wireless tablet devices come on the scene. New technological and business uses arise causing changes in economic opportunities for multiple industries.

There are two arenas that companies must balance in order to satisfy managers, ceos, and financial strategists. One is the 'real market' where the products are designed, built, sold and revenues are received. It is where expenses are paid out and the profits can be easily recognized as 'the bottom line' (Michaels, 2011). This is the bottom line that is often referred to by managers in maximizing profits to satisfy the executive board of directors. This is also a function of labor and wages in that the effort required to produce costs more in hours. Therefore requiring more wages which in turn affects expenses such as overhead, human resources, benefits and ultimately the profit margins.