Industry- the Case of Microsoft

¶ … Industry- the case of Microsoft

Merger Regulations

Government regulation in mergers

Companies intending to merge are required to provide information on their transactions to government for authorization. They are required to provide information on market share, and any other industry related matters which would essentially change upon the merger. The authorities concerned will use the information provided to ascertain if the merger will lead to anticompetitive practices thus, loss of welfare. When assessing the information details, rival companies may provide the information to the body. The information will be considered and if the regulatory body is satisfied that the merger is okay to undertake they would recommend. On the contrary if the merger is bound to be harmful to the market equilibrium then they will not recommend.

Reasons for government regulation in mergers

Mergers entail combination of two companies/corporations where one is absorbed completely by another, Ginsburg, Martin D., & Levin, 1989.

Many mergers lead to the surviving corporation assuming all privileges liabilities and rights of a merged corporation. Mergers differ from consolidation where in the latter; the corporations lose their identities and link up forming a new corporation all together Marks & Lee., 2003()

Government regulations are based on interest that mergers eliminate competition and monopoly which is economically not preferred my set in. This concern is even graver where the corporations are direct competitors in the market. Mergers in case of close rival companies eliminate competitions and the feared strategy would be to increase prices by reducing output Marks & Lee., 2003.

Government intervention is justified by two fundamental reasons which are; to correct market distortions and redistribute income. This two include an overall objective which is to meet the optimal economic operations Deardorff, Alan V., & Jackson, 1993()

Distortions/Market Failure

Market failure occurs where a company operates where marginal benefits exceed the marginal cost. This is mostly the case for monopoly markets and it will set in case a merger of two rival companies occurs. The regulations on mergers try to look at the likely hood for distortions and also mitigate them. Where mergers lead to distortion of once equilibrium market economy the government will need to come in to reduce welfare cost bone to the society. This is the case since with below optimal operation of a market there is bound to be externalities.

The government needs to overlook the possibility of distortions occurring deterring them from occurring. This is the reasons why government is involved in mergers and it is required to assess them. Optimality of the market's operations are necessary in the economy because it leaves no capacity underutilized.

Income Distribution

First it should be noted that a merger will cause loss of jobs where the companies are seeking to cut down their cost and increase profits. Over and above this, mergers may bring a redistribution of wealth that is undesirable. Although income distribution is determined by factors above the control of government, some sense of distribution can be achieved through regulations. Mergers will cause a reduction of cost of labor where labor force is provided to one company in abundance. In mergers, government will need to oversee how it would lessen the impact of mergers on income distribution. The government's regulations will ensure that the merger does not distort the levels of employment in the economy and it will also not lead to a reduction of the income levels. The regulations are necessary to the extent they reduce externality likely to about from the merger. There is also concern that the government may incur a higher cost in paying for unemployment benefits which necessitates it regulations in mergers.

Provision of market activity

Other than the above two likely reasons for government involvement, the government may have non-economic reasons. Such activities include the national security which is a public good which is related to welfare. The government intervene in market activities so that they can provide welfare commodities and products that otherwise cannot be provided for under the market mechanism. The provision of public goods such as defense and security is only possible through government interventions. Government regulations and interventions ensure that society does not miss production of welfare commodities that the market cannot produce.

Cultural Identity Promotion

This includes aspects such as sustaining productive capacity, producing for the future and sustaining the population. This is mainly the case such as maintaining Oil reserves and grains for consumption. Where the market is left to manage and provide for the economy, there is bound to be deficiency where storage for future is needed. The government steps in to undertake this activity since it has no economic profit to undertake. The objective sought in this instance is to preserve the national culture and safe guard the interest of the community.

Correction of government activities

Where the regulatory body has undertaken an activity that has led to undesirable result far from optimal corrective measures are necessary. This argument may not be considered worthy especially by those who are against government involvement in market activities. With government intervention being subjected to reactions from other economic institutions, failure is inevitable. The government will thus need to re-intervene to correct what it had done and suit it to the ideal circumstances. Example where a government seeks to provide health care to all but ends to provide health care to people affected by unhealthy habits such as smoking. The government will re-intervene by ensuring it taxes appropriately those causing the illness and there by internalizing the cost.