LISTINGS

SUBTOPICS

In the previous section, we talked about competition. Generally speaking, competition is good for an economy because it forces firms to innovate, to provide better service, and in general to better serve society. When there is a monopoly of some sort in any industry, that monopoly can do whatever is best for themselves and nobody else can compete against them. After all, companies are in it for profit, and so without competition, there is no reason for a company to be nice to the customer. Who else are you going to buy your product from? The phenomenon of the monopoly eventually became a major problem and government regulators had to come and control the problem of monopolies. These policies are called antitrust policies.

National governments intervene when they see that a single company is becoming too powerful. When a company gets to be so powerful that it may destroy all rivals and establish monopoly, government regulators step in. The actions that a government can take is affected by the culture of the country. Governments can impose punitive damages and force rollbacks of prices and other punishments against economic violators. The U.S., however, is an exception in that its antitrust policies are much more aggressive than the rest of the world. As stated before, policies regarding competition is related to culture. The U.S. is a country with a culture that is generally distrustful towards what is big. The U.S. is a country where people are generally skeptical and distrustful and cooperation is not fostered, and thus U.S. laws can take much more stringent actions against companies, including breaking them apart. One such action that has been successful is the AT&T case.

Sometimes, monopolies are officially supported by the government. This can be attributed to welfare capitalism, which has some socialistic aspects. Governments regulate these industries that can operate most efficiently when only one company control the market. For example, the telephone industry involves channeling calls from hundreds of millions of people around a nation and having different companies control the linked network is very difficult.

Companies don't only compete by making various decisions concerning their own operation, they can also choose to drastically change the entire identity of their company. Firms can combine together to form one company in a merger. Sometimes, however, a merger involves a company taking over the operations of another company without actualy merging their operations. This is a takeover. In an acquisition, one firm buys up another one and takes control of it. There are hostile takeovers in which the management of the company about to be taken over does not want it to be taken over, but the purchasing company still takes it by simply persuading shareholders of the company to sell them that company's shares. Remember, shares are ownership rights of a company. Sometimes, there is significant maneuvering in the effort to buy up companies. Companies sometimes try to buy each other. Other times, the company being bought tries to somehow make themselves undesirable to be bought. This is often done through a massive waste of money. By taking on a massive debt, a company puts a liability on itself that the buying company would not want to assume.

Mergers not only differ by the way they are carried out but also by the resulting structure of the new company. When two companies of the same industry merge, it is a horizontal merger; when two companies of the same supply chain (for example, an auto company and an auto parts company) merge, it is a vertical merger. When two companies in totally different markets (for example, a television company and a housing company) merge, it is a conglomerate merger.