Term Paper: Antitrust Failure of the Firm

Pages: 8 (2360 words)  ·  Bibliography Sources: 1+  ·  Level: Master's  ·  Topic: Economics  ·  Buy This Paper

SAMPLE EXCERPT:

[. . .] Annual reporting may affect short-term investments of the firm because they may not be easy to trace or the firm may feel not necessary to include in the annual operating publications. Regularly fluctuating stock prices are also affected by the annual reporting because the period is too long to include all the changes in the stock prices within a year. Quarterly publications reduce complications in understanding that arise due to long annual operating reports.

Short-term reporting allows easy and fast decision-making for both shareholders and managers of corporations. The short-term reports provide a picture of the market scenario and allow decisions to be made according to the market expectations and demand. It is easy to make adjustments on stock prices on short-term rather than on an annual basis. This simplifies managerial responsibilities when necessary information is readily available from the quarterly reports. Management can deal with these two competing goals by always ensuring availability of all information about the operations of the firm. Availability of data facilitates easy publication of operation activities on a quarterly basis. Prioritizing the activities of a corporation can also help management to deal with these competing goals and produce desirable results to shareholders. By putting the interests of shareholders first, management can prioritize activities that aim to maximize wealth.

4 Understanding of the Price Mechanism

Price system is a common strategy used in the allocation of resources in any country. In a free market economy, price is the best method to achieve the allocation of resources and market clearing. Price system is an efficient way in resource allocation because it allocates resources based on the ability and willingness to pay. The price system ensures there are no surpluses or shortages in the market. An understanding of the price mechanism helps the government to allow a free market economy allocates resources while intervening to ensure equality in resource distribution. Government intervention in a free market system can be trough taxation where the government can raise or lower taxes to achieve desirable economic goals. Government intervention in the form of taxation without considering its effect on the price system in the market may significantly disrupt the allocation of resources.

Application of a mixed price system, where we combine both fixed and free price system helps to regulate the effects of supply and demand in a free market economy. In a fixed price system, the government sets system prices while the free price system relies on the mechanism of supply and demand to determine the prices of goods and services in the economy. Price mechanism in a free market economy is necessary because it facilitates decision making concerning the scarce resources and the many alternatives available to use the scarce resources. According to studies by Himmelweit, Simmonet and Trigg (2001), in a market characterized by private ownership and labor services, a price mechanism that will control and direct choices of agents is important. Such a market is characterized by stiff competition, which can only be controlled by a suitable price mechanism. Taxation of excess profits from the government in a free market economy denies oil company's revenues to fund further exploration and development in the oil industry.

Taxation may discourage further innovation into oil products, limit incentives to work, and produce more in the oil industry. Taxation of the profits will deny the industry the necessary funds for growth and these companies will turn to borrowing in order to fund their activities. Understanding of how the price system works to achieve resource allocation enables the government to eliminate heavy taxation on the excess profits of large oil companies. Price mechanism strengthens competition within the industry and ensures each company strives to remain in the market by producing and offering quality goods and services. This is beneficial to the consumers of these goods and services. On the other hand, free market system controlled by the price system may not achieve resource allocation. This occurs when the market system fails to consider the purchasing power of the people. Achieving equality in resource allocation through a free market system is not easy due to market inefficiencies (Himmelweit, Simmonet & Trigg, 2001).

The inefficiencies in a free market economy prompt the government to intervene through taxation in order to achieve equality in resource allocation. Through taxation, the government can direct resources in specific sectors of the economy that meet the needs of low-income citizens. Taxation works to redirect resources from one side of the economy to another. Not all agents in the economy can afford the prices offered by a free market economy. Prices induced by demand and supply do not work to achieve equality in resource allocation. In conclusion, the government has over the years improved its understanding on the effectiveness of price systems in the allocation of resources; however, government intervention is still necessary to control various economic behaviors.

References

Straub, T. (2007). Reasons for the Frequent Failures in Mergers and Acquisitions: A

Comprehensive Analysis. Printed in Germany: Springer Publishers

Banerjee, S.B. (2009). Corporate Social Responsibility: The Good, the Bad and the Ugly.

Montpellier: Edward Elgar Publication Ltd.

Himmelweit, S, Simonetti, R & Trigg, A. (2001). Microeconomics: Neoclassical and… [END OF PREVIEW]

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Antitrust Failure of the Firm.  (2013, October 16).  Retrieved March 19, 2019, from https://www.essaytown.com/subjects/paper/antitrust-failure-firm/4162770

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"Antitrust Failure of the Firm."  Essaytown.com.  October 16, 2013.  Accessed March 19, 2019.
https://www.essaytown.com/subjects/paper/antitrust-failure-firm/4162770.