Mario Billote, Joyce Redondo, Steve Gibson, Cort Furuoka
April 17, 2013
Dr. Darryl Baker
Economic Analysis Report Microeconomics can be justified as the analysis of decisions made by individuals or groups of people and the study of economic behavior in industries and consumers. Some of the concepts that microeconomics focuses on are market prices and how the supply and demand curve initiates change. Microeconomics also examines mergers and price elasticity which are vital notions important to microeconomic excellence. As decisions are made through microeconomics, both firms and individuals analyze the prices of products and services motivated by demand costs and benefit considerations in a portion of the economy instead of as a whole. Improving microeconomic development can create enhancement of individual productivity, expansion in businesses, and increase overall resources needed to maintain exceptional economic activity in local communities.
Microeconomic Concepts The concepts of microeconomics are factors that influences market prices and how organizations in the market economy perform business practices undergoing limited resources that produce goods and services. In a series of market demand and supply, finding an equilibrium price is a challenging task because changes in market supply are common where shifts in the supply curve will initiate any adjustments in the demand curve. As a result of this, any changes in demand or supply will alter equilibrium prices and quantity in the market. Many companies may find that the best method to become financially secure and maximize profits is to expand ownership boundaries through mergers. In addition, mergers can also fail through a series of inadequate management ability because of organizations being large at size. Also, the inability to exceed management success can result in loss of revenue. In regards to merging, the concept stated by Colander (2010), "A merger is a general term meaning the act of combining two or more firms" (p. 417). There are three different mergers in economics and each are distinctively characterized by the types of businesses that are merging.
Concept of Horizontal Merging A horizontal merger is when two companies in the same line of business who generally compete with each other come together to create one large corporation. Undergoing a horizontal merge authorizes the surviving company to control a large portion of the market allowing the company the opportunity to grow and decrease the effect of a specific industry's potential profitability by minimizing the number competitors. Eliminating competition allows a company to gain a larger market share and creates fewer options for consumers to choose from.
Concept of Vertical Merging A vertical merger is when a company buys out an industry's supply chain. An example of a vertical merger would involve a furniture company buying out another company who supplies wood. The advantages of vertical merging allow one company to manufacture goods cheaper than buying materials needed to produce a certain line of product. This type of merger leaves competing companies the challenges to compete in the market because of the advantages the merger brings.
Concept of Conglomerate Merging Conglomerate merging is combining two or more corporations that engage in different business activities and have no relation to one another. An example of a conglomerate merger is an electronic company like Sony merges with a sports beverage company like PowerAde. One of the several reasons corporations undergo conglomerate merging is to add shares of the market of one company and to cross sell another product to maximize profits. An advantage from the benefits of conglomerate merging is diversifying a company's market share allowing a sense of financial security and to minimize the risk of financial losses. Below is an example of what the outcome of a