Economics Unit 3 - 25 Marker
I've tried to summarise my response as much as possible, if you could please tell me what to improve on and any suggestions would be really appreciated
Using the data and your economic knowledge, evaluate the view that mergers, such as the one proposed between British Airways and Iberia Airlines, are usually ‘good for consumers as well as the companies involved' - June 2011 ECON 3
Defined merger - where 2 businesses join together to make one new business. The Competition Commission evaluates possible mergers to see whether it would create a monopolistic company, can decide to block the merger if it feels it would be too dominant
Good for consumers as the formation of a new business could improve competition leading to improvements in the quality of goods and services and lower prices and firms would be more allocatively efficient. However, the merger could lead to the firm having monopoly power and so it would increase prices while reducing consumer choice
Monopoly diagram
The supernormal profits could benefit consumers as it could be used for investment and make the firm more dynamically efficient however, this would not always be the case as a merger would mean there is one less firm to compete with so a fall in competition would reduce the incentive for the firm to be dynamically efficient or productively efficient
a merger would benefit the companies involved as it would allow the firms to share prices and revenue, a potential rise in revenue would mean more profits
a merger would be good for consumers as well as the companies involved as the companies could make more profits which could be spent on research and development, increasing allocative efficiency, benefiting consumers
Using the data and your economic knowledge, evaluate the view that mergers, such as the one proposed between British Airways and Iberia Airlines, are usually ‘good for consumers as well as the companies involved' - June 2011 ECON 3
Defined merger - where 2 businesses join together to make one new business. The Competition Commission evaluates possible mergers to see whether it would create a monopolistic company, can decide to block the merger if it feels it would be too dominant
Good for consumers as the formation of a new business could improve competition leading to improvements in the quality of goods and services and lower prices and firms would be more allocatively efficient. However, the merger could lead to the firm having monopoly power and so it would increase prices while reducing consumer choice
Monopoly diagram
The supernormal profits could benefit consumers as it could be used for investment and make the firm more dynamically efficient however, this would not always be the case as a merger would mean there is one less firm to compete with so a fall in competition would reduce the incentive for the firm to be dynamically efficient or productively efficient
a merger would benefit the companies involved as it would allow the firms to share prices and revenue, a potential rise in revenue would mean more profits
a merger would be good for consumers as well as the companies involved as the companies could make more profits which could be spent on research and development, increasing allocative efficiency, benefiting consumers
Original post by Blyts-_
x
Other things you could've talked about, international competitiveness for the firm that's a merger assuming the most productive level of output hasn't been met. Also mergers usually involve rationalisation, so think about the consequences to the potential loss of jobs within the individual companies. You don't need two headquarters for instance.
Market contestability is always a good point to just throw around in a question like this. The EU for instance believes that firms will act in public interest if markets remain contestable. Possible policies to make such a market more contestable is the removal of bureaucratic barriers to entry or the harsher punishment of strategic barriers to entry such as predatory pricing. Firms would accept long-term normal profits, which may be better in accordance to the consumers interest although the company themselves may not benefit too much from the merger.
For the conclusion, try and balance your argument and come with a clear answer. So Yes, R&D is more likely whilst a firm is making abnormal profits but due to lack of competition in domestic markets is there really an incentive to innovate?
Remember it may be bad for consumers in the short-run as prices are likely to rise, however with government regulation, such as tax incentives for the firm to invest in R&D, it may lower prices in the long-run. So differentiate between short-term and long-term consequences (remember this is all theoretical). Good to talk about efficiency as you have, and consumer/producer surplus.
I'm guessing the question has more data, pick out relevant points which you can just expand on. Using the data questions is basically just reading the content and picking out points in which you can expand.
Original post by Abdul-Karim
Other things you could've talked about, international competitiveness for the firm that's a merger assuming the most productive level of output hasn't been met. Also mergers usually involve rationalisation, so think about the consequences to the potential loss of jobs within the individual companies. You don't need two headquarters for instance.
Market contestability is always a good point to just throw around in a question like this. The EU for instance believes that firms will act in public interest if markets remain contestable. Possible policies to make such a market more contestable is the removal of bureaucratic barriers to entry or the harsher punishment of strategic barriers to entry such as predatory pricing. Firms would accept long-term normal profits, which may be better in accordance to the consumers interest although the company themselves may not benefit too much from the merger.
For the conclusion, try and balance your argument and come with a clear answer. So Yes, R&D is more likely whilst a firm is making abnormal profits but due to lack of competition in domestic markets is there really an incentive to innovate?
Remember it may be bad for consumers in the short-run as prices are likely to rise, however with government regulation, such as tax incentives for the firm to invest in R&D, it may lower prices in the long-run. So differentiate between short-term and long-term consequences (remember this is all theoretical). Good to talk about efficiency as you have, and consumer/producer surplus.
I'm guessing the question has more data, pick out relevant points which you can just expand on. Using the data questions is basically just reading the content and picking out points in which you can expand.
Market contestability is always a good point to just throw around in a question like this. The EU for instance believes that firms will act in public interest if markets remain contestable. Possible policies to make such a market more contestable is the removal of bureaucratic barriers to entry or the harsher punishment of strategic barriers to entry such as predatory pricing. Firms would accept long-term normal profits, which may be better in accordance to the consumers interest although the company themselves may not benefit too much from the merger.
For the conclusion, try and balance your argument and come with a clear answer. So Yes, R&D is more likely whilst a firm is making abnormal profits but due to lack of competition in domestic markets is there really an incentive to innovate?
Remember it may be bad for consumers in the short-run as prices are likely to rise, however with government regulation, such as tax incentives for the firm to invest in R&D, it may lower prices in the long-run. So differentiate between short-term and long-term consequences (remember this is all theoretical). Good to talk about efficiency as you have, and consumer/producer surplus.
I'm guessing the question has more data, pick out relevant points which you can just expand on. Using the data questions is basically just reading the content and picking out points in which you can expand.
I'm giving a talk this Sunday to Economics students and I've decided to do it on 'forward guidance', I've got a few details of it but, in your opinion, do you think it is effective? Do you have suggestions on other possible topics? Something macro-economics related
Original post by Blyts-_
I'm giving a talk this Sunday to Economics students and I've decided to do it on 'forward guidance', I've got a few details of it but, in your opinion, do you think it is effective? Do you have suggestions on other possible topics? Something macro-economics related
I don't know much about it to comment. I assume it wouldn't be much different from just keeping interest rates as they are. Other factors such as economic uncertainties and animal spirits play a much bigger role, regardless, in my opinion.
Personally, I'd do a talk about the giving of Foreign Aid in times of Austerity. I think the controversy in that subject area will allow for good discussion. Bring in politics, economics and morality. Whatever you feel most comfortable with. I prepared a 1.3k word essay about this topic, if you're interested.
(edited 10 years ago)
Original post by Abdul-Karim
I don't know much about it to comment. I assume it wouldn't be much different from just keeping interest rates as they are. Other factors such as economic uncertainties and animal spirits play a much bigger role, regardless, in my opinion.
Personally, I'd do a talk about the giving of Foreign Aid in times of Austerity. I think the controversy in that subject area will allow for good discussion. Bring in politics, economics and morality. Whatever you feel most comfortable with. I prepared a 1.3k word essay about this topic, if you're interested.
Personally, I'd do a talk about the giving of Foreign Aid in times of Austerity. I think the controversy in that subject area will allow for good discussion. Bring in politics, economics and morality. Whatever you feel most comfortable with. I prepared a 1.3k word essay about this topic, if you're interested.
I just researched a bit about the topic, seems to be quite interesting. I'll PM you my email, if you could email me the essay?
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