Business Competition 8.06: Explain how changes in the level of competition can affect price and output levels Identify and describe the roles and functions of various economic institutions and business organizations
Market Competition 1. Markets work effectively with more buyers and sellers 2. Some are controlled by a sole provider or Monopoly 3. Governments goal is to encourage competition through Antitrust laws - laws that regulate monopolies a Sherman Antitrust Law - banned monopolies 1) Example AT&T in 1990
4. Mergers-a combination of two or more companies to form one business, prevent competition, government may intervene (Federal Trade Commission or Justice Department) a. Horizontal Merger = joins 2 or more firms that produce the same product so can produce more of the product cheaper b. Vertical merger = Business at a different level or stage of the product delivery process buys another firm c. Conglomerate = forms when unrelated businesses join together. d. Multinational Conglomerate = unrelated businesses from 2 different countries Market Economy
Market Competition 5.Natural Monopoly - the cost of production is minimized by having a single firm produce the product a.Example-electricity, water, phone lines 6.Oligopoly - a few markets dominate, is the median between Monopoly and Competitive Market a.Example Pepsi, Coca-Cola 1)Both can raise prices, but may lose profits because consumers prefer one over the other
Type of Businesses 1. limited life= can ’ t last forever 2. unlimited life= means can last forever 3. limited liability= owner can ’ t lose more $ than the owner put into the firm 4. unlimited liability= must pay for all the firms losses (taxes included) 5. Sole proprietorship - simplest form of business (1 owner), benefit from all profits and sole decision making a. Limited life & unlimited liability-sole responsibility for debts
Types of Businesses 6. Partnership- 2 owners a. Limited life & unlimited liability-each owner responsible 7. Corporation-business recognized by law that has all rights and responsibilities of individual a. Unlimited life & limited liability-company responsible for debt not owners 8. Franchise- not a form of business, but holds a license to operate as another business- ex: McDonalds a. It provides regulations/supplies for running one of its stores
Economic Institutions 1. Labor Unions - organization that represents the interests of employees in relation to employers a. Use collective bargaining, mediation, strikes, arbitration, and negotiation to gain benefits and better wages for workers 1) Fair-Labor Standards Act (1938)- created 40 hr work week