What Holds Effective Business Competition Back?

A free market economic system has been taken as a paradigm exposition for organizing and streamlining the relationship between state, private property owners and the community. Taking markets as a panacea to some of the gigantic problems that have bound the communities, such as production and distribution problems of goods and services to the community and consumers, the system got its apogee and acclamation after World War II. Before that, the theoretical base related with free market economic system was laid, in 18th century America.

Adam Smith, often called "the Father of Modern Economics", elucidated his economic thoughts in his seminal book - "An Inquiry Into The Nature And Causes Of The Wealth Of Nations". Here, he said that competition between the market actors is a driving force for harvesting the bounty of free market economic systems.

As such, the system is grounded on the simple rule - the demand and supply of goods and service is Pareto efficient enough to determine the price, quality and quantity of goods. Hence, competition between producers, wholesalers and retailers of goods and service has a huge force for determining the benefit accrued to the consumers. That is why some intellectuals enunciated the fact that 'as constitution is a sin qua non to the democratic state, competition between market actors is a magna carta to a free market economic system'.

The EPRDF-led government, after taking on some soul-searching endevours, has made some policy and strategic decisions related to the type of economic line it wants to follow, after 1991. The main theme of the economic journey that the government took is to have a vibrant and robust market-oriented economic system.

To do this, fiscal and monetary policy of the state has been reshuffled in a way that achieves that same objective. Among fiscal and economic policies and strategies that a government took were devaluing the currency, liberalising the market, lifting custom duties and so on.

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Merger: A culprit Behind Uncompetitive markets?

In a business world, business persons boldly strive to get the patronage or custom of consumers to survive and amassed the hefty of benefit in the market. As the business environment exposed to stiff and harsh competition market actors conclude various types of arrangements or agreement to be successful in the market. Among those business arrangements which business persons routinely entered, merger is the one.

Merger is a business arrangement entered between two or more legally registered independent companies or business organizations and which helps those companies to establish another fused and combined company or business organization. In effect, one business company would be swallowed by another company hence rights and obligations of two or more independent companies or business organizations would be transferred to the newly merged company. 

Merger arrangement could be carried out in different forms. Generally, merger could be materialized between companies who may have different line of relationship or companies who does not have any line relationship, what so ever. For example merger arrangement can be carried out when companies which are on the same production line, which is called horizontal integration, can merged and establish the new companies or it may be materialized among companies who are on different production line, which is called vertical integration. These ways of merger arrangement is streamlined between companies who are producing substitute goods or among input producing and input demanding companies. Other form of merger arrangement can be materialized when companies which do not have any any relation, which is called conglomerate, merged.

Merger arrangements have some identifiable benefits. Companies who produce substitutable goods could merge to enhance their market power and in effect could help merged company to decrease the production costs and realize the economy of scale. Hence, one of the benefits of competition,  which is called production efficiency, could easily be realized. Secondly, merger arrangement between input producing and output producing also enhances the merged company to carry out its production activity in a seamless way.

 

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