Econ – Mergers and Acquisitions
Strayer University Professor Dastmalchi
August 21, 2012
Explain why government regulation is needed, citing the major reasons for government involvement in a market economy. A free market economy is driven by individual innovation and the notion that hard work and ingenuity will be rewarded by success. Scarce resources are allocated through the price mechanism where the preferences and spending decisions of consumers and the supply decisions of businesses come together to determine equilibrium prices. The free market works through price signals meaning when demand is high, the potential profit from supplying to a market rises, leading to an expansion in supply to meet rising demand from consumers. All businesses exist to make a profit. Therefore, in the free market system, a successful business makes a consistent profit in a field of competitors. The concept of competition is an important component of a free market system. Competition in the marketplace provides the best possible product to the customer at the best price. When a new product is invented, it usually starts out at a high price, once it is in the market for a period of time, and other companies begin to copy it, the price goes down as new, similar products emerge. In a competitive market, the poor versions of the product or the overpriced will be pushed out of the market because consumers will reject them. “The government may choose to intervene in the price mechanism largely on the grounds of wanting to change the allocation of resources and achieve what they perceive to be an improvement in economic and social welfare. All governments of every political persuasion intervene in the economy to influence the allocation of scarce resources among competing uses” (IMACB 2012). Some of the main reasons for government intervention are to correct market failure, achieve more equal distribution of income and wealth as well as improve our economic performance.
Justify the rationale for the intervention of government in the market process in the U.S. When analyzing mergers and acquisitions and everything that goes into them it seems that they can be some of the most complex type of market processes. This is the reason why the U.S. government puts so much focus and emphasis on these mergers and acquisitions. The government could also intervene in order to regulate the resources and allocate the right amount of the resources for the improvement in the economies and social welfare. “The government wanted to improve and correct the failures that have been taking place all over the market, and to distribute the resources and the income equally in the market place. The government also intervenes in the market process with the intention to improves and enhances the performance if the economy” (Harding, 2007). The government intervenes in the market process in two ways, firstly the government can put legislations and regulations, secondly they can out the direct state provision of goods and services. For example in some states well in particular two that I am familiar with NC and PA the government has prohibited from smoking in restaurants as well as selling cigarettes to minors which can control the sale and price in the market place. Assuming that the merger faces some threats and that the industry decides on self-expansion as an alternative strategy, describe the additional complexities that would arise under this new scenario of expansion via capital projects. When a company decides to merge there are a number of factors that need to be considered by management. When conducting business in a national area it will not only bring about cultural differences but also legal, political and macroeconomic issues. In international acquisitions, the acquiring company might be familiar with the industry, but not with the newly-entered market. Hence, the case could be that the acquiring company becomes more dependent on the...