Competition and Collusion
Competition is one of the motivators for hard work, and it drives even businesses to offer high-quality items and implement perfect policies that will propel them ahead of their competitors. With more potential competitors entering the market, lawful competition is becoming a thing of the past. Agreements including cooperation and mergers are increasingly being signed in order to provide the rest of the companies producing or dealing in the same range of commodities an unfair advantage (Png 2013, p.56). The result of these dubious schemes has been the deterioration of the market forces with the prices of commodities hiking but the quality remaining deplorable. The governments and corporate organizations such as the European Union have intervened to preserve the market caliber through regulatory policies and lawsuit.
Collusions
Collusion is defined as the formation of a secret pact with the aim of deceiving others. In the world of business, it is regarded an illegal move undertaken by some companies that are unable to keep up with the competition in the market (Leigh and Triggs 2016, p.391). It is one of the anti-competitive practices that contravene the competition law that governs the practice of business. The primary objective that underpins this behavior is the urge to conquer the market with minimal struggle. Unlike most unlawful agreements, the motive that drives collusion advocates for mutual benefits (Earl and Wabeley 2005, p.211). Companies that deal in the same products could collude to lower the prices of goods beyond the conventionally set standards to disadvantage their competitors. Market division and limitation of production and opportunities are the other forms of business malice that are exercised by the parties that seal collusion deals.
Tacit Collusion
However, tacit collusion is an acceptable form of collusion that mainly displays itself in price leadership. That is a market pattern where one of the leading companies in a given field either manufacturing or processing bears the monopoly of setting the prices of commodities, and the other companies are expected to follow suit (Png 2013, p.171). The practice departs from kinked demand principle that implies companies will only lower prices if one of the players in the market does so to limit randomized losses. Unfortunately, egocentrism has provoked some of the companies in such agreements to seek other unscrupulous ways of upsetting the market to the detriment of their counterparts (Wilkinson 2005, p.321). These trends have jeopardized the efforts to nurture consolidative collusion schemes that are valid for the general public without posting unnecessary nuisance to the consumers and other producers.
Price Setting
Price setting is an essential component that determines the market dynamics in the business sector. Customers prefer it when they can access quality goods at fair prices. Companies that meet these requirements often secure a sustainable competitive advantage over their rivals. At times these companies are forced to reduce their profit margins to attract a broad customer base (Duso et al., 2014, p.350). Consequently, most of the companies despite having made mega sales fail to attain their anticipated profit targets. Moved to avert this situation, some of the business firms collude with their potential competitors and set high prices for their products. The consumers having no other cheaper option of obtaining the goods are compelled to pay the set prices offering the companies huge profits and limiting their losses (Png 2013, p.54). As a result, the consumers are left feeling exploited and speculating that cheaper alternatives could exist, and this lays the foundation of customer dissatisfaction.
Business Collusion
Business collusion is a strategy that perpetuates the limitation of products and opportunities. Upon colluding, the companies involved could agree to cut on the production of goods (Leask and Parnell 2005, p.460). This scheme creates an artificial shortage of their products without necessarily affecting the demand which remains at its peak. Following the conventional balance of the market variables, the prices for the commodities are bound to rise owing to the diminished supplies. It is not only the consumers that suffer the aftermath of such endeavors but also the downstream and upstream companies (Earl and Wabeley 2005, p.243). The upstream companies will experience a reduction of raw materials ordered by the middle-level company and risks incurring losses. On the other hand, the downstream company will have a limited amount of goods to process and consequently low output. There is the likelihood that these companies will lay off some of their workers or close some of the outlet branches due to reduced workload.
Market Division
Another contagious scheme bred by collusion is market division. This ideology banks on the fact that companies share a common market which is determined by the variety of commodities they produce (Froeb et al., 2015, p.123). Therefore the parties colluding find it prudent to establish specialization in the production of goods. In this scenario, the companies do not have to compete again since they will be producing different products that target different consumers. With only a few products to concentrate on, the companies strive to remit to the market goods with unmatched quality that makes it hard for the other businesses in the same category to compete effectively. Moreover, specialization builds an avenue for product identification with a particular company thus increasing their sales (Duso et al., 2014, p.364). Collusion, in essence, is a concept that the companies adopt to benefit them at the expense of the consumers and other players in the market.
Mergers and Takeovers
A merger is an anti-competitive concept that implies the union of two separate companies to form a single unit. It is a move that is triggered by the desire of given companies to play a central role in the market (Eckbo 2014, p.54). Through merging, the two parties involved are likely to exhibit increased workforce, consumers, and a wider market base. However, the decision to procure a merger is not entirely beneficial to the companies if they had different investment capitals or held various positions in the market. Mergers can be classified into horizontal and non-horizontal mergers. Horizontal mergers are the commonest and involve companies at the same economic niche in the market. On the contrary, non-horizontal mergers encompass vertical merging schemes that could entail upstream or downstream industries (Banga and Gupta 2014, p.69). Mergers lead to the concentration of resources and subsequently reduce the output of products to the market.
The repercussion of mergers is that the involved companies no longer encounter competition in the market as appertains to the products they deal in. Having formed an alliance, the companies will exhibit pronounced market power which will prompt them to increase the prices of commodities to the detriment of the consumers (Banga and Gupta 2014, p.69). Additionally, the market shares disparity that formerly existed is reduced to uniformity. The investors also stand on the losing edge since the stocks they had in either of the companies are likely to be revoked should they be against the plot. Vertical mergers are responsible for foreclosure exercises that are punitive to upstream and downstream companies depending on the route it takes. Upstream foreclosure implies that the merged companies restrict the number of customers the company serving them with raw materials accesses (Wilkinson 2005, p.342). That is possible through ordering bulky products from them and distributing to the rest of the consumer firms. Downstream foreclosure occurs when the prices of the products are set too high for the companies served by the merged parties.
Conversely, takeovers are business prospects where an acquirer company identifies a potential target with which it shares the market and seeks to transfer the ownership (Carvalho and Marques 2014, p.295). This procedure can be undertaken formally or informally depending on the motive of the acquirer company. Formal takeovers are aimed at rescuing a dilapidated company that is undergoing declination in capital, market base, and production. This kind of acquisition has minimal harm to the target company and the consumers as well. Nevertheless, it is uncommon. Purchase of stocks from a company is the major route exploited to infiltrate a target enterprise (Png 2013, p.24). If a rival company owns more than half of the stocks in a particular company, it is likely that it dominates in the decisions made by the corporation following the shares it holds.
The drive for takeovers is instigated by the desire for synergy in the market which implies the pooling of the companies' prowess to offer quality products to the consumers. With an extensive backup of expertise and a diversity of approaches to the market demands, this anticipation is feasible (Duso et al., 2014, p.353). Moreover, taking over the management of a company opens an avenue for securing more investment opportunities and streamlining its policies to comply with that of the acquirer. Instead of the competition struggle, the acquirer has had to endure from the target; it accrues more revenue from the company. Pooling of resources upon acquisition of the target company aids in reducing the operating costs and subsequently increases the profit margin of the acquirer (Earl and Wakeley 2005, p.223). In some instances, the target company retains its brand name that the consumers identify with as the acquirer works behind the scenes to manipulate its activities.
Natural Monopolies
A natural monopoly is a situation whereby a particular company exercises autonomy in the supply of given products or services. In most countries, a natural monopoly is exhibited in the distribution of electricity and water services (Leigh and Triggs 2016, p.393). Contrary to coercive monopoly which entails the prevention of potential companies from entering the market, natural monopoly eliminates the intrusion of competitors in the market through the availability of harsh business conditions. These barriers to entry include high initial capital and contending against a grounded market rival. The long-term effect of such stringent measures is low profits thus the indulgence proves imprudent to most of the potential business firms (Carvalho and Marques 2014, p.294). In a business environment dominated by a natural monopoly, the market demands have little implications on the average costs of the products or services offered.
With limited competition, the quality of services provided risks being compromised. Since it is only a single company vetted with the mandate of providing given services, the consumers have no other option but to accept the services as they come at the cost designated by the company (Wilkinson 2005, p.421). It is possible that the companies could set very high prices to obtain exuberant profit margins. That happens to the disadvantage of the consumers who cease to be the determinants of the market dynamics and are turned recipients of the decisions of the company. Monopoly is a hindrance to the diversification of approaches that could be adopted to better the means through which services are harnessed or goods produced to meet the market demands. Monotonous ideas are thus established and chronically used; a factor that could jeopardize market growth (Png 2013, p.146). The most trivial demerit of this policy is the inability to serve a fast-growing consumer base which puts the company at risk of overstretching its sources to meet market demands.
Notably, the monopoly curtails the possibility of comparison which is a crucial element in elucidating the standards of operation of a given company. The pressure to upgrade that accompanies competition is absent, and the companies exercising monopoly are likely to become reluctant in policy implementation as well as service provision (Earl and Wakeley 2005, p.201). This reluctance is the basis for improper customer care service and the drag in the endorsement of strategic plans that are objective in changing the face of the market. Carefully monitoring the system, it is clear that the qualified workforce that has the capability of joining the industry that the company domineers may not have an opportunity to practice their expertise. The reason could be the fact that the positions are already packed by older employees or worse still expatriates (Wilkinson 2005, p.348). For this reason, economic stagnation has been a lot of the states that have most of their companies practicing monopoly.
Mitigation Measures
Stakeholders and the trade agencies have anticipated the encroachment of these unwelcome business practices and as a result have put in place measures to keep them in check (Eckbo 2014, p.55). The European Union and the United States have been at the frontline of advocating for a favorable and competitive trade environment. One of the ways that have been used to mitigate these challenges in the market is a lawsuit. Laws that describe the nature of illegal collusions, mergers or takeovers have been made part of the constitutions of various countries as the principles that govern the participation in trade. Williams Act that gave a mandate to the Securities and Exchange Commission to apply punitive measures on any company that contravenes the ground rules has not been very effective in curbing takeovers which it was meant to target (Png 2013, p.150). Countries are progressively adopting policies that are pro-competition in a bid to eliminate the anti-competitive practices that are chronically on the rise.
Market globalization and trade liberalization constitute some of the practical remedies to anti-competition practices. Through these policies, trade restrictions have been uplifted, and the barriers removed (Leigh and Triggs 2016, p.396). Despite the complaints that this move has been the cause of local trade deterioration through the infiltration of cheap goods in the market, it has acted as a means of checking monopoly and mergers. Price setting which has been misused by the companies for their benefits at the detriment of the consumers has been upset. To keep up with the demands of the market and stage a challenging competitive advantage, the companies formerly in a limbo of no competition have had to step up the quality of the goods and services they release to the market (Duso et al., 2014, p.358). Liberalization has also provided the consumers with a wide variety of options to choose from. Therefore adopting trade liberalization schemes is vital in the mitigation of anti-competitive business practices.
In spite of the government having a central role to play in disabling anti-competitive practices, the real-time solutions rest with the management of the business firms. Takeovers have a direct impact on the wellbeing of a company since it involves a change of ownership and subsequently the core values and objectives (Froeb et al., 2015, p.123). Since the main channel exploited by acquirers is the purchase of stocks, this entity needs to be monitored more closely. Upon the detection of any sinister endeavor by the shareholders, it is prudent for the management to lay appropriate measures to abate the lingering takeover. The establishment of differential voting rights (DVRs) regulates the number of votes a shareholder can cast in a critical decision-making forum (Eckbo 2014, p.70). DVRs do not consider the number of shares a shareholder could be having and thus act as a way of creating equity in deciding the plight of the company among the shareholders.
Involving the employees is another way of ensuring prospects entailing mergers and takeovers do not succeed. The institution of an employee stock ownership plan recognizes the employees as part of the objective owners of business firms and incorporates them in the decision-making process (Leask and Parnell 2005, p.466). For this reason, it is impractical to dissolve a company by either selling it off for a takeover or merging it with another for this will jeopardize the job security of the employees and shift their terms of the agreement with the employer. Moreover, owing to a large number of the employees they are likely to secure a more significant proportion of the stocks than any individual investor, a factor that curtails the pragmatism of ownership transfer. Poison pill and greenmail have been extensively used by the companies that are deemed as targets of takeovers. A poison pill is a strategy where the company sells its shares at a lower price to prospective investors to reduce its overall value (Png 2013, p.28). That is a demoralizing fact that prompts the acquirers to drop the takeover pursuit. Greenmail, on the other hand, involves repurchase of stocks from the shareholders.
The natural interplay of events in the market significantly contributes to the measures that check on collusions. The increase in the number of firms in the same economic niche targeting the same consumers does not favor collusion since working with a large number of companies slows down the process of reaching amicable resolutions (Duso et al., 2014, p.354). Cost and demand differences add to the disparity between companies making it a tussle to merge them or procure collusion. Economic recession curtails the anticipated benefits that colluding companies looked forward to and increase the cost of engaging in such form of pacts which would mean supporting the incompetence of the other company at the expense of progressive development. Cheating is another derailing factor that the colluding companies have to deal with. It is not guaranteed that both companies will remain loyal to the set of agreements should they appear to be less lucrative than independent business practice (Leask and Parnell 2005, p.467). Unfortunately, it would be ignoble to wait for the natural factors to solve the anti-competitive puzzle. Companies and governments ought to intervene to hasten the process.
Natural monopolies are an aftermath of a hostile business environment that companies dread to indulge. It is due to the high amounts of capital required, and the low-efficient costs postulated. In endeavoring to regulate these monopolies, the intervention of the government is handy (Leigh and Triggs 2016, p.402). States can give subsidy for the raw materials required by upcoming companies to establish themselves. Additionally, in the case of provision of services such as water and electricity distribution, the government can secure a portion of the market to be supplied by the new companies through market demarcation (Earl and Wekeley 2005, p.234). Legislation granting business autonomy to particular companies should be amended and proactive principles adapted to enhance investor attraction.
Conclusion
The mitigation of collusions, mergers, and takeovers and natural monopolies is a move that will favor competition in the business world and work towards cultivating a sustainable business environment. Business revolves around the equilibrium in the interests of both the producers and the consumers. Anticompetitive practices upset this equilibrium by championing the egocentric desires of the companies while exploiting the consumers through unchecked policies. For this reason, it is imperative for business managers and the governments to come together and establish viable remedies that will secure the business atmosphere for every potential company that desires to indulge. Adopting relevant legislations and policies is an ideal method for getting around this problem.
References
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