Market power
The ability of a firm to influence or control the terms and conditions on which goods are bought and sold.
Market dominance
A measure of market share compared to competitors
External growth methods
Merger and acquisition
Merger(external)
This is where two companies join together to form a new larger business
Acquisition(external)
This is where control of another company is achieved by buying a majority of its shares.
- shares have to be 51% and above for control over a business
Benefits of external growth
- may gain new management with different skills
- will result in an increase in market share ( and market power/dominance)
- may be able to meet customer needs more effectively with combination of resources
- may experience economies of scale
External growth disadvantages
- May suffer from diseconomies of scale due to the size I.e. communication problems
- may take on extra debt that the business could struggle to repay if the strategy isn’t successful(business/shareholders)
- could result in redundancies(employees)
- could result in higher prices(customers)
- ## could result in a dominant business dictating terms and conditions (suppliers)
Diseconomies of scale
Output rises and unit costs go up
Organic growth examples
- opening new stores
- launching new products
- employing more workers
- increasing productive capacity( opening factories)
- investing in new technology
- launching existing products into new markets(geographically)
Organic growth advantages
- Less risky than growing externally( less debts)
- could be financed by retained profits
- is a sensible/steady way of growing a business
Organic growth disadvantages
- Growth rate could be too slow to satisfy shareholders
- will be difficult to achieve if the market is not growing or is shrinking
- hard to increase market share if the business is already a market leader
Regulators
European Commission regulator and the Competitive market authority(CMA)
What does the CMA do?
- Investigates mergers which could restrict competition
- investigates where there may be abuses of dominant positions
- brings criminal proceedings against individuals who commit the cartel offence( collude to decrease the competition in a market)
- enforces legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice
What is the CMA’s main aim ?
To promote competition for the benefit of the consumers, both within and outside the UK. There aim is to make markets work well for consumers, businesses and the economy
CMA sanctions
- firms can be fined up to 10% of their global turnover
- customers and competitors of the firm(s) can sue for damages caused by anti- competitive behaviour
- individuals can be disqualified from being a company director
- CMA can fine individuals, such as a director if they fail to comply with the CMAs requests for information provision
Cartel offence examples
Price fixing, market sharing, bid rigging
Impacts of regulation
- encourages businesses to compete to gain customers I.e. by producing better quality goods
- results in more choice for customers
- results in better value for customers
- results in more business operating in a market
- results in better terms for suppliers
- less abuse of dominant positions
Economic indicators
GDP Inflation Interest rates Exchange rates Employment figures Balance of payment equilibrium
GDP
- gross domestic product
- the total value of output produced in a year as a percentage
Economic growth meaning
Percentage change in GDP
Ways that the government can facilitate economic growth
- Encourage investment in physical capital by offering subsidies or lowering taxation
- improve infrastructure e.g. transport links so that raw materials are delivered faster and employees can get to work quicker and produce
- improve the quality of human capital by investing in Education ( higher skilled workers more output)
