Essay Written For: Danet Espinosa
College: Miami Dade College
Name of the Instructor
Government May Improve Markets Essay
Mergers and acquisitions (or M&A) lead to the consolidation of firms and/or assets via a couple of legal financial transactions. M&A include a host of transactions. What is of essence is that in all cases, the companies involved combine their resources and efforts towards cornering the market to their own advantage. If this goal is achieved, the big enterprise becomes a monopoly. Those in favor of monopolies argue that they are primarily about enhancing efficiency, while those opposed to the practice cite the kind of inequality they produce (Dolliver 36; Zanella 381).
Characteristics of Monopolies
There are about five major characteristics of monopolies, and these include having a single seller as a vast portion of the market is under the control of a single firm. Second, the goods produced lack close substitutes. The monopoly becomes the price maker, and hence it can manipulate the prices and change the quantity of its produce which hence shifts the supply-curve as it wishes. This has been observed with electric companies in California (da Costa 509).
If Brazil’s sugar industry becomes monopolized, there will definitely be high entry barriers. New firms, especially those without a strong financial basis, will find it impossible to enter the market. Since there will be no immediate competition, firms could continue making profits in the long term. This is unfair. Even though there is lack of close competition, monopolies do still invest in advertisement of their products. The idea is to increase demand and entrench the culture of consumerism. The people keep on wanting higher and higher quantities of the goods and services (Dolliver 36).
The Advantages and Disadvantages of Monopolies
Stoller (18-9) argue that large businesses tend to be more efficient, and this could mean a reduction in prices of goods and services they produce. Nonetheless, that is a possibility, but it does not mean that every firm will lower the prices if and when it has an opportunity. According to Zanella (381), another advantage is that monopolies could hire a large number of employees. In addition, they have what it takes to produce huge quantities of goods, which means that the market will be adequately supplied.
Monopolies have the money and opportunity to invent. However, these are just possibilities. In most cases, the only reason firms decided to take a bold step of coming together was to streamline their efforts and increase their profits. Therefore, it is illogical to conclude that their first or second priority is to engage in such charitable undertakings as offering jobs to the residents, or lowering prices. This is why it is imperative to consider their obvious disadvantages (da Costa 526-7).
Monopolies will do all they can to impede the success of smaller business organizations. That was one of the main reasons they joined forces in the first place, that is, to corner the market. Stoller (24) argue that there are also cases where they take advantage of their employees. Pollution is yet another major challenge, yet even the clients cannot punish them by boycotting their products. They are the only ones availing products into the market. Worse still, most monopolies end-up influencing the government. As they corner the market, therefore, they also corner the politics (Stoller 21; Zanella 381).
A monopoly is characterized by lack of competition. In the case of the sugar producers in Brazil, this would be lack of competition in accessing raw materials, producing the goods in question, and viable substitutes become almost nonexistent. In most cases, monopolies end-up rising prices way beyond their reasonable marginal cost. A high profit is earned as a result, and this further increases their power. The government of Brazil need to come-up with laws which discourage the cornering of the market to maintain vibrancy in the market (da Costa 520).
da Costa, Camila Furlan, et al. “The financing of culture in Brazil between 2003 and 2015: A path for generating monopoly rent.” RAP: Revista Brasileira de Administração Pública, vol. 51, no. 4, July 2017, pp. 509–527. EBSCOhost, doi:10.1590/0034-7612162254
Dolliver, Mark. “Condemning big business, but lauding the small sort.” Adweek Eastern Edition, vol. 42, no. 24, June 2001, p. 36
Stoller, Matt. “The return of monopoly.” New Republic, vol. 248, no. 8/9, Aug. 2017, pp. 18–25
Zanella, Fernando C., et al. “Monarchy, monopoly, and mercantilism: Brazil versus the United States in the 1800s.” Public Choice, vol. 116, no. 3/4, Sept. 2003, p. 381. EBSCOhost, doi:10.1023/A:1024807728596