Government’s Opposition against Merger
This is reason why it is being opposed by the government. In addition to this, horizontal merger also affect the sustainability of small medium enterprises as market would be in the control of single firm. So, it is highly opposed by the government as with low competition in the market, it would not be easy to determine economic growth of the country.
Apart from this, there are also some aspects associated with these mergers that make the justice department to challenge. The justice department ranks mergers on the basis of their substantial impact over the competition between the firms. The mergers having adverse impact over the competition are more challenging for the justice department as it affects the whole market (Schlossberg, 2008). As with monopolistic competition in the market, it would be very difficult for firms to determine their sustainability, the department has to consider this aspect seriously. At the same time, it will also have negative impact over the innovative activities in the market also.
Fixed-Production Technology and Variable-Production Technology
There have been several differences in fixed and variable-production technology. The major difference between the two is that under variable production technology, the cost of labor, material changes according to change in the production unit, whereas with fixed-production technology, there is no such change seen (Tucker, 2007). At the same time, the cost of production also changes in variable-production technology with the increase in the number of production, whereas with fixed-technology production, there is no change in the cost of production with change in the number of units produced.
The marginal social cost of pollution may be defined as the additional cost incurred because of the increase in the unit of pollution. Today, pollution is topic of concern for many of the governments as it has negative impact over the society (Yamashita, 2010). Reduction in marginal social cost of pollution to zero is not possible for the government as it would require a complete ban over the industrial activities that are not possible.
Although, it is very important to set a goal of reducing marginal social cost through different means such as environmental standards, emission tax, tradable emission permit and pigouvian taxes etc. With increasing marginal social benefit of pollution, government could ensure low rate of marginal social cost of pollution in the economy. In addition to this, since with fixed production technology, the cost of pollution is high, so it should be on the centre on government objective to minimize marginal social cost of pollution to zero in fixed production technology (Tucker, 2007). But with variable production cost, this is not the case as it also increases the marginal social benefits of pollution.
Regulatory Dilemma and Trade-Offs
Regulatory dilemma may be defined as a specific body formulated by most of the nations to formulate the regulations for long-term growth of economy. The main task of this regulatory dilemma is to suggest remarkable ways to government for encouraging constant improvement in the economy through innovation and investment. With effective regulatory dilemma, countries not only decide their economic growth, but also determine healthy competitive market that provides substantial growth to all industries (Baldwin, Cave Lodge, 2012). With strong IP protection and licensing requirements, it helps nations to smoothly run their business environment. It acts as a policy making body for country to determine the effectiveness of economic activities in the country.
In order to control natural monopoly, the regulatory body could set the price of products equal to marginal cost of the product. This will force monopolistic companies to produce huge amount of products at the lower possible rate. Ultimately within a period of time, these companies will face losses and would seek for government subsidies to operate their business. This would minimize the impact of these monopolistic companies from the market. Again, through restricting these companies to produce their product at certain level also, which help regulatory dilemma to control natural monopoly (Lele, 2007). Apart from this, restricting the rate of return from an investment would also help to control natural monopolistic to a great extent by the regulators.
Underground Economy and Its Impact on Productive Activity
Underground economy may be defined as economic activities that is not shown in any report and is being hidden from official reports. It is also known as the shadow economy as it moves side by side with economic activities in organizations. Under this underground economy, the income is mainly generated through illegal activities such as prostitution, gambling etc (Bajada Schneider, 2005). Today, in most of the economies, this underground economy is running simultaneously affecting economic growth of the countries. As the income earned through this economy is not shown in the taxable income, it is badly affecting growth of the country.
Instituting tax on certain productive activity will have negative impact over the underground economy. The illegal activities in underground economy will increase a lot. As people would be willing to save this tax they would invest maximum on these illegal activities that will further impact economy of the country. The growth of economy would be affected with increase in illegal activities as government would not get any part of it to run its operations smoothly. Today, most of the economies are suffering with this problem as they used to institute heavy tax on productive activities that attract people towards illegal activities (Enste Schneider, 2002). Apart from this, it may also result into negative growth of economy resulting into rise in the prices of goods and services. With the increase in illegal activities in economy, it would be very difficult for government to maintain balance in the economy.
References
Bajada, C. Schneider, F. (2005). Size, causes and consequences of the underground economy:
an international perspective. Great Britain: Ashgate Publishing, Ltd.
Baldwin, R., Cave, M. Lodge, M. (2012). Understanding Regulation: Theory, Strategy, and Practice. Great Britain: Oxford University Press.
Enste, D. Schneider, F. (2002). Hiding in the Shadows: The Growth of the Underground Economy. USA: International Monetary Fund.
Kirchner, T. (2009). Merger arbitrage: how to profit from event-driven arbitrage. USA: John Wiley and Sons.
Lele, M. (2007). Monopoly rules: how to find, capture and control the world's most lucrative markets in any business. Great Britain: Kogan Page Publishers.
Schlossberg, R. (2008). Mergers and acquisitions: understanding the antitrust issues. USA: American Bar Association.
Tucker, I. (2007). Microeconomics for Today. USA: Cengage Learning.
Yamashita, N. (2010). International fragmentation of production: the impact of outsourcing on the Japanese economy. UK: Edward Elgar Publishing.
