8
Economics Data Response: 20 Questions and Answers for A2
Brian Ellis
ISBN: 978-1-905504-46-6
Published by Anforme Ltd.,
www.anforme.com
CONTENTS
Part One - A2 Microeconomics
Still Innocent
Competition among the fewSky’s the limitMonopoly and monopsonyCompetition between high technology giants
Regulatory Action
Part Two - A2 Macroeconomics
Value of the Yuan
Income distribution in the USA
Emerging inequality
Vietnam
Page
25
52
A2 MICROECONOMICS
STILL INNOCENT
Evidence A - Mergers and acquisitions
acquisitions can take the form of a hostile takeover.
value of the acquiring company.
Mergers may be horizontal, vertical or conglomerate.
Evidence B - Innocent Smoothies
Innocent, the maker of fruit smoothies which now sells 2 million drinks per day, sold
market segments in a range of activities. Established multinationals seem to have
then was itself bought out by Kraft four years later.
water in the UK and a number of complaints about actions suspected of being unethical.
A2 MICROECONOMICS
STILL INNOCENT - QUESTIONS
2. Analyse reasons why mergers might not add to the share value of the acquiring
buying into smaller rivals rather than developing products of their own to match those
A2 MICROECONOMICS
PAGE 5
1. Identify distinct advantages of horizontal, vertical and conglomerate mergers.
scale when duplicated activities such as distribution are combined.
supply of furniture suited precisely to its requirements.
business, the business reduced its dependence on tobacco. 2. Analyse reasons why mergers might not add to the share value of the acquiring company (Evidence A).
involve payment to the owners of the business which is acquired. In some cases
agreed that the acquisition posed more of a threat than an asset to the acquiring bank.
company.
Another consideration is that a substantial time period can be involved in successfully
are possible but are not guaranteed.
the acquiring company and that market sentiment is sometimes preoccupied with the
acquiring company.
STILL INNOCENT - SUGGESTED ANSWERS
3. Examine the objectives of the founders of Innocent Smoothies.
this approach.
an interest in growth.
can maintain the warm and ethical image of small, new companies. In the case of
If the founders of Innocent Smoothies were truly idealistic, they might hesitate to
given.
mergers are common.
which already have a large market share are involved, the market can become very concentrated.
can result in reductions in average cost. If these reductions are passed on to customers
can reach the point where diseconomies of scale set in, and also that market power will
cities of the world.
Growing concentration moves markets further away from the competitive model, to the point where oligopoly is now characteristic of many markets and global oligopoly is found in some. In oligopoly, markets are dominated by a handful of interdependent
Sometimes oligopoly produces intense competition which can work in the interests
large enough market shares to acquire some monopoly power. In such situations,
fallen foul of competition authorities in several countries because of perceived abuse of monopoly power.
making it harder for rivals to compete.
moving further away from the perfectly competitive ideal and one important element in controlling this situation is the quality of regulation provided by competition authorities.
5. Assess the case for multinationals such as Coca-Cola and L’Oreal taking over or buying into smaller rivals rather than developing products of their own to
acquire an interest in products for which they could only produce original close
brands and company names which often carry positive images and can continue to use those names if they so choose.
from the home territory of multinationals can bring better understanding of their local
persuade the original owners to relinquish or share control of a business which might
small minority share in Innocent Smoothies.
