Monopolies, Mergers, Takeovers and Restrictive Practices

Perfect competition

where market forces ensure that the only successful seller is the one who offers consumer what they want

not found in the real world, but some world markets for agricultural products have some feature

eg the wheat market

Features of perfect competition

Homogenous products (impossible to differentiate)

free entry and exit

large numbers of buyers and sellers

full info is obtainable

Oligopoly

small group of firms control the market for a particular good or service

EG coca cola and Pepsi

Firms in position to exploit consumer and prevent firms competing

Features of an Oligopoly

Interdependence

Differentiated products

Barriers to entry

Price makers

Advantages of an Oligopoly

highly competitive pricing strategy= lower price for consumers

sufficient funds

price stability

Disadvantages of an Oligopoly

low consumer choice

low competition=higher than norm prices for consumers

lack of competition=low quality

Monopolistic competition

sole suppliers of branded goods, but other firms compete with them by selling similar goods with different brand names

Features of Monopolistic competition

differentiated products by branding and use of trade markets

few barriers to entry

faces competition from firms supplying very similar goods

large number of buyers and sellers

Monopolies

one business dominates the whole market, realistically CMA describes monopoly as any firm with greater than 25% of industry’s sales

E.G translink

Features of a Monopoly

no substitutes

single seller

barriers to entry

price makers

advantages of a monopoly

avoids duplication and wastage of resources

benefits from economies of scale as only supplier in market

makes lots of profits, used for research and development=maintain status

Afford to invest in technology and machinery=efficient

good source of revenue for the government

disadvantages of monopoly

poor service

consumers charged high pries for low quality

lack of competition=low quality and out of date goods and services

consumer exploitation

Regulation of markets

Intervention is usually required in order to protect the interests of the consumer

CMA, OfCom, OFWAT

CMA

competition and markets authority

work to promote competition for the benefit of consumers, businesses and economy

OFCOM

office of communication

the communications regulator in the UK.

OFWAT

water services regulation authority

a non-ministerial government department established when the water and sewage industry in England and Wales was privatised

Merger

the joining together of 2 or more companies, to form one larger organisation, through the combination or integration of all assets and resources to produce synergistic benefits for the merged entity

Takeovers

when one business acquires another

Hostile takeovers

situation where 1 company has attempted to acquire another business but the directors will attempt to persuade owners to not accept bid

Friendly takeovers

situation where 1 company attempts to acquire another business will full co-operation of both management teams

Reasons for takeovers

to enter new markets or increase existing market share

provide security or continue operations

acquire certain assets or unique resources

make a profit/return on investment

advantages of takeovers

expand easily and quickly

opportunity to diversify

cheaper option than organic growth strategy

use surplus cash

defend market position/share

yield financial benefits

enter foreign markets

take advantage o global trading

take advantage of economies of scale

disadvantages of takeovers

may not yield benefits as envisaged

lead to culture clashes

expensive=charge consumers more

may not be in the public interest

loss of consumer confidence

not guarantee jobs

draw negative publicity