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Mergers can impede competition with an industry but at the same time they have some advantages. Mergers have the ability to create monopolist, but this is not always the case. When two rival companies merge they create a market power that they can use to control prices. However, in the case of my company merging with a rival, no market power was increased. Instead, the merger was meant to increase the efficiencies of the two companies. The efficiencies of the companies merger plan supersede the negative effects (Clarke, 2014). According to the Antitrust authorities, companies in the same line of production should only merge when the processes lead to more efficiencies. This was the case in the merger of these two companies.
A market power can only be formed when there is an apparent danger of the merging companies to control the market. The danger would only be present when the government has not put any regulations on mergers and monopolistic organizations. There is no dangerous possibility that the two companies will obtain a monopolistic effect. There are rule and regulations set by the government to ensure that organizations do not take control of the market by forming mergers and eliminating the competition element. For instance, there are price regulations that have been implemented by the government (Clarke, 2014). Therefore, despite forming a merger, the company will not be in a position to set prices that are above the government-set limit. Hence, the merger does not have the ability to control prices or enjoy any market power. Instead, the merger was formed to increase the efficiencies of both companies for the benefit of shareholders and their shareholding value.
First, the merger will prevent the industry from closing down. The industry in which the companies operate has been on the decline since the firms have been struggling to stay in operation. It should be noted that declining industry would have negative effects on the economy. It would affect the level of production, and hence the country is likely to lose its balance of trade due to increased imports and reduced exports. Subsequently the country will have little earnings from foreign exchange.
The merger will allow investment in research and development. Research and development are essential for innovation and invention. Companies may not have sufficient money to invest in R & D as a result of low profitability. Through mergers, the newly formed firm will be able to make more profits and hence can raise resources to invest in R & D. The companies, despite being rivals merged so that they can raise resources for investing in R & D. Over the recent couple of years, multinational organizations have been on the increase and they have threatened the local firms. To increase the competitiveness of our local companies in the international scene, the two companies decided to merge.
The merger will form one strong organization that can compete with the multinational organizations that are dominating the market. It is imperative to note that multinationals have a great financial muscle and hence it is not easy for a single local firm to compete favorably with them (Clarke, 2014). As a matter of fact, the merger will avoid monopolistic effect that the multinationals are likely to create. The fact that these organizations are large and strong means that they have the ability to control the market and prices of goods and services. The merger of these two companies will create an organization that can counter any moves by the multinationals to create a monopolistic effect and control the market.
The merger is within the law and has observed all the requirements as stipulated by the authorities. The organization does not intend to dominate the market or bar other new entrants from joining the market. Mergers are aimed at making the company stronger, increase its quality of production as it will in the position to afford better production equipment and also enjoy the economies of scale which will in turn lead to low prices.
Assume that the demand for plastic surgery is price inelastic. Are the following statements true or false?
Price elasticity of demand refers to the changes in demand for a product or service caused by a unit change in price. A product is said to be elastic when a slight change in price leads to a large change in the quantity of a product or service demanded. On the other hand, when a change in price only causes a slight change in the quantity demanded, the product or service is said to be inelastic (McEachern, 2012). In the assumption that the price of plastic surgery is inelastic when the price of plastic surgery increases, the number of operations does not decrease. This is because a change in price for an inelastic product does not lead to a significant change in demand. In the event that there was a change in the number of operations, the decrease was minimal.
The percentage change in price of plastic surgery is not less that the percentage change in quantity demanded. This is because price change in the case of inelastic goods or services is always higher as compared to the change in demand. Therefore, the percentage change in the price of plastic surgery should be higher than the percentage change in the number of operations.
The statement; changes in the price of plastic surgery does not affect the number of operations is true. Change in price has little or no effect on the demand for an inelastic product. This means that despite an increase in the level of prices, people will still go for surgery. A reduction in the level of prices will not lead to any increase in the number of people coming for surgery.
Quantity demanded is not responsive to changes in price. The product is inelastic, and hence the change price does not have any significant effect on its demand. The demand does not respond significantly to change in price. Whether the prices are increased or decreased, the same number of people will still be coming for plastic surgery. Customers are not mindful of the price charged for surgery and. Therefore, they will still go for it despite the amount charged.
The marginal revenue of another operation is not negative. Every additional operation leads to an increase in the revenue earned. Marginal revenue is the increase in revenue as a result of the sale of one extra unit of the product or services (McEachern, 2012). As long as the sale is profitable, an increase in a unit sale will always lead to an increase in marginal revenue. The plastic surgery operations are profitable and hence, an increase in operations will increase the marginal revenue earned.
The theory of the Firm Document
Business organization are created with a major objective of maximizing profits. Shareholders want to create as much wealth as possible from their investments. According to the theory of the firm, business organizations should only work towards achieving their ultimate goals and objectives. Therefore, they should answer the questions of why they exist, where their boundaries with the other organizations are and what they should do to achieve their goals (Spulber, 2009). All decisions that a firm makes should be aimed at maximizing long-term profits.
According to Freud, business organizations should do whatever it takes to ensure that they maximize profits. In fact, this theory discourages any corporate social responsibilities by the organization as this is seen as a way of reducing profitability. It was a neo-classical theory that was applied in the past years. There are still some organizations today that believe in this theory. Over the past years, organizations have moved into a more integrated way of business whereby they can generate short-run profitability and long- term profitability at the same time (Spulber, 2009). There are regulations imposed by various authorities that require business organizations to present their financial statements on the periodical basis. The statements could be in quarterly or semi- annually basis.
Businesses organizations in the United States of America are however required by the Security Exchange Commission (SEC) to prepare financial statements on a quarterly basis. The requirement by the SEC can be said to contradict the theory of the firm. According to the theory of the firm, the organization should prepare their financial statements in the long term to determine whether they have achieved their objective, as opposed to short-term statements as required by the SEC. SEC focuses on the profitability of firms for short periods. That is why it requires periodical financial statements.
The short time frame stipulated by the SEC has an effect on the long-term profitability of the firm. The firm tends to focus on the decisions and activities that will increase its profitability in the short-term period in place of long-term decisions. As a result of the SEC regulations, managers are more likely to make short-term decisions since they are aiming at maximizing profits in the short run. The organization is likely to lose track of its long-term goals. In other words, the SEC regulation has a negative effect on the long-term profitability of the firm. However, the SEC should not change their regulations of public corporations to require only annual reports. Short-term decisions, if well structured have the ability to impact on the long-term outcome of the firm.
For instance, when a firm aims at maximizing profits in the short term, the decisions it makes should be sustainable such that they also lead to good profits in the long run (Spulber, 2009). Also, shareholders need to get profits all the time and hence the organization should find a good balance between short-run investments and long-term investments. Money generated in the short run can be used to make more long-term investments that will lead to even higher profitability. The regulation by SEC keeps the organization on the check so that they are focused on profit making. The short run performance can be used by the organization as a scorecard to gauge its performance against its target.
SEC regulations have an effect on the stock prices. The profits of a firm dictate the prices of stock. For instance, when the profitability of a firm is high, there is a high probability that its stock prices will be high. Investors want to invest their resources in an investment that will give them good returns. As a result, they buy stocks of an organization that is performing well. Going by the rules of demand and supply, the stocks of a profit making organization will highly demand and hence their prices are likely to go up. In the event that SEC change their current regulations that require firms to prepare quarterly reports, firms will longer aim at maximizing profits in the short run. It will mean that investors will not rush to buy the stocks since the organizations are not making profits. As a result, the demand for stocks in the short will go down and so will the prices.
The management of business organizations should be in the position to deal with the two competing goals – short term profitability as required by the SEC and long-term profitability as in line with the theory of the firm. Finding a balance between the two goals will ensure that the stock prices of the firm are valuable at all time. It will also ensure that the shareholders wealth is maximized both in the short run and in the long run. In the end, the firm will be able to make high profits since the short run income can be re- invested to generate more profits in the long run.
To balance the two goals, the management should be classified into strategic and middle managers. The strategic managers will focus on making long-run decisions that will maximize the firm’s profits in the long-term as per the theory of the firm requirement. The middle managers, on the other hand, will focus on making short-term and middle-term decisions. The decisions by the middle managers and those by the long-term managers should all have a common denominator that is achieving the mission and vision of the organization.
Excess Profits Tax
Excess profits tax is a tax levied on profits above a certain given limit. There is a normal profit or the usual profits that an organization earns during its normal operations. However, at times businesses earn more than normal. The excess profits are levied what is referred to as excess profit tax; it is mostly applicable during war times when organizations make excess profits as a result of the war. Organizations can as well make profits above normal during peacetime, and such profits are also charged excess profit tax (Cordes, 2005). It is a fiscal policy that the government uses to raise money for emergencies. The policy was applied in the 1970s energy crisis but was not applied when the similar crisis arose in the 2000s. It is a policy that had a negative effect on the business organization since it did not give them an incentive to invest more and make more profits. The fact that this policy was not used when the energy crisis arose in the recent years means that there has been a change in the price system works to allocate resources.
In the past years, the price system worked towards ensuring that resources are fairly allocated among organizations. In doing so, the government charged high tax on organizations that made more than normal profits. This ensured that no organization possessed more than normal profits to generate more than normal profits. Today, price systems are not used to allocate resources. Organizations are at liberty to hold as many resources as they can. They are not regulated by the amount of profits they make. The fact that no excess tax is charged on profits means that organizations are now motivated to make high profits without fear of being taxed.
Companies get funds to expand their operations from profits or loans. When excess profits are taxed, it means that oil companies and other companies may not be able to raise sufficient funds from profits. They will need to find other means through which they can raise money. The best alternative they will have to raise money would be borrowing. They could borrow money through the sale of debentures and bonds. They can also borrow loans from banks. It should be noted that these alternative sources are expensive as compared to reserved profits as they earn interest. The sources will hence increase the companies’ expenses and reduce profitability.
Demand and supply can lead to the high oil prices that led to the energy crises (Cordes, 2005). Reduced supply would mean that there is little oil being demanded by the same number of people. To regulate the market, the prices will go up so as to make some people unable to afford and hence reduce demand to return the market to an equilibrium point. The energy crisis that took place in the 1970s and the 200s was induced by the changes in demand and supply. The supply of oil at the time was low, and this led to an increase in prices.
Reference
Clarke, J. (2014). International merger policy: Applying domestic law to international markets. Cheltenham, UK: Edward Elgar Publishing.
Cordes, J. J. (2005). The encyclopedia of taxation & tax policy. Washington, D.C: Urban Institute Press.
McEachern, W. A. (2012). Microeconomics: A contemporary introduction. Mason, OH: South-Western Cengage Learning.
Spulber, D. F. (2009). The theory of the firm: Microeconomics with endogenous entrepreneurs, firms, markets, and organizations. Cambridge: Cambridge University Press.
History
Shell is majorly referred to as Royal Dutch Shell and deals with the provision of gas and oil to retailers and consumers in the world. The company has its headquarters in Netherland. The company was formed in 1907 and it aimed at competing globally to provide quality and standard oil. The company started operating as a dual-listed company as the merging firms maintained legal existence but operated as a single-unit partnership for the purpose of business. The company was the major supplier of aviation fuel and to the British Army during the First World War. The company moved to a single capital structure in 2004 because the firm overstated its oil reserves. In 2010, Raizen and Cosan became equal shareholders of the company. The company has invested in selling shale U.S gas assets in 2013.
Mission Statement
The mission statement of Shell is to meet the objectives of the consumers and meet their demand for energy. The company strives to honor its mission statement through the promotion of opportunity, fairness, and respect for the associates. The company ensures that it accomplishes the mission statement through supplying and manufacturing the oil products and services to satisfy the customer needs. More so, the company aims at achieving the operational excellence. More so, the firm focuses on fulfilling the mission statement through conducting its business in a safe environment. Thus, Shell is committed to ensuring environmental sustainability and conducting its operations in an economically optimum manner. Shell employs an innovative and a diverse result oriented and motivated team to deliver excellent results.
Values and principles of the company
i. Blue Shield Blue Cross Insurance Company is guided by various principles such as:
ii. Supporting free enterprise and competition in the oil sector
iii. To achieve long-term profitability to help in achieving the business goals and continue with its growth
iv. The company is committed to acting in a socially responsible manner adhering to the rules of the countries that they operate in based on their commercial objectives.
v. Shell has a systematic approach that adheres to environmental management, security, safety, and health to achieve continuous performance improvement.
vi. The company aims at working with the neighbors to improve the ways in which it contributes to the well being of the society
vii. The firm also recognizes that engagement and dialogue with the stakeholders are vital for the operations of the firm
Values
The company is guided by:
i. Building strong trust in the promises, relationships and being ethical, honest and open
ii. The firm values the people through acknowledging the recognizing the contributions of the people and care and respect each other
iii. The company focuses on the outcomes and takes personal accountability and ownership
iv. The company is well connected and has strong partners
v. The company values creative solutions through embracing risks, experimenting and challenging their thinking
Concepts from completed courses
My first day during my internship at Shell, I realized a different working environment. The management of the company is close to the employees and share experiences leading to cohesion in the working experience. More so the managers at the company act as role models to the inexperienced workers promoting talents and skills among the youths. I also realized that the workers at the company work in an ethical manner. The workers do not discriminate their clients against race, ethnic and gender.
History Blue Shield Insurance
Blue Shield Insurance Company started in 1932 after the rise in the need for the patients to seek medical cover. The company started with the intention to offer prepaid and affordable insurance services. The company started as Blue Cross Blue Shield of New Jersey, and its mandate was to offer health insurance services and products to the business and families in New Jersey.
The company was not committed to offering services in New Jersey alone but also in other areas, and it ensured that friends, neighbors and family members gained access to affordable medical care. The company has expanded into other countries and offers other insurance services and act as administrators of Medicare. The company became a non-profitable mutual organization in 2014 and had created voice among the members. The company management believes that the new dimensions in insurance facilities will help in the creation of a healthier state.
Mission Statement
The mission statement of Blue Shield Blue Cross is to provide value health benefit services to the customers in the country as well as other parts of the world. The company strives to honor its mission statement through the promotion of opportunity, fairness, and respect for the associates. The company fosters the integration of health systems and contains the health care cost to help and benefit the people in the areas that they serve as well as supporting the private and public efforts in meeting the health care needs of the people without insurance cover.
The company aims at fulfilling the mission statement through collaborating with the community in the advancement of health care quality and effectiveness. The firm fosters its mission by conducting responsible business to ensure long-term financial growth and viability. The organization offers various quality, administrative services, and innovative insurance plans that are accessible and affordable to the customers. The company also achieves its mission statement by addressing the customer needs fairly in the jurisdiction it operates.
Values and principles of the company
Blue Shield Blue Cross Insurance Company is guided by various principles such as:
i. To improve the access to quality health care services for residents in Florida to strategize on improving the access of health care insurance for uninsured and underserved populations.
ii. To focus on activities and programs that aim at improving quality and access to health care for ethnic and racial minorities and those from low-income backgrounds
iii. To value the initiatives that use financial and other resources in varied ways for sustainability, help magnify the impact and leverage.
iv. To diversify the health care insurance service plan to all the population in the country
v. To value lasting and strong relationship between the institutions and applying agencies that they partner to serve the community values
The company is guided by:
i. Building strong trust in the promises, relationships and being ethical, honest and open
ii. The firm values the people through acknowledging the recognizing the contributions of the people and care and respect each other
iii. The company focuses on the outcomes and takes personal accountability and ownership
iv. The company is well connected and has strong partners
v. The company values creative solutions through embracing risks, experimenting and challenging their thinking
Concepts from completed courses
My first day during my internship at Blue Shield Blue Cross, I realized a different working environment. The management of the company is close to the employees and share experiences leading to cohesion in the working experience. More so the managers at the company act as role models to the inexperienced workers promoting talents and skills among the youths. I also realized that the workers at the company work in an ethical manner. The workers do not discriminate their clients against race, ethnic and gender.
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