Essay on "Market Competition and Regulation"

Essay 8 pages (2379 words) Sources: 6

[EXCERPT] . . . .

Market, Competition and Regulation

The competitive environment that characterizes today's global economy has determine numerous companies to resort to anti-competitive practices and international organizations to establish sets of rules and regulations designed in order to prevent such practices from taking place. Antitrust laws are being developed and implemented by countries within their boundaries, but can also be developed by international organizations, like the European Union.

The European Union, through its commissions, is quite active in this direction. This is because the European Union intends to build a competitive environment where all companies have equal opportunities at addressing the European market. As a consequence, the EU has established a series of laws that must be followed by companies that intend to do business in the European environment.

The EU is mainly interested in monopoly situations and how they can affect the European market and the players in this market. The EU has established strict laws that must be followed by the European companies or by foreign companies that address the European market. The EU has initiated a series of investigations regarding companies that threatened to develop a monopoly position on the European market.

Such an investigation is represented by the action in which the EU analyzes the situation of IBM and the monopoly suspicion regarding this company and its activity. IBM has been accused by T3 Technologies that the company is abusing its dominant market position by connecting its operating system sales with its hardware sales (Oates, 2009).

In addition to this, was also accused of patent information and other intellectual property that was required by the company's competitors in order to properly manage their activity. Platform Solutions also complained about IBM. In order to resolve the situation, IBM acquired Platform Solutions, but the EU continued its investigation.

T3 Technologies' complaint was also supported by the Computer & Communications Industry Association. The association accused the U.S. antitrust authorities that are considered to be unreliable and inefficient at managing such situations. IBM is also investigated by the U.S. Department of Justice.

Economic Analysis

IBM, or International Business Machines Corporation was established in 1911. Since its establishment, the company focused on using technological developments in order to improve business operations initially. As a consequence, IBM continues to integrated solutions that aim at solving customers' problems, using leverage information technology and knowledge of business processes (IBM, 2010).

The main advantages of the business solutions developed by IBM rely on the fact that they help reduce customers' operating costs, and ensure new capabilities directed towards generating revenues for these customers. The main services provided by IBM refer to consulting, delivery and implementation services, enterprise software, systems, and financing.

Although the it industry is characterized by unstable factors that are sometimes difficult to anticipate and that significantly influence the security of the business activity of companies in this industry, IBM is one of the companies that manage to develop in this environment. The company's success can be attributed to the strategy developed and implemented by IBM.

The company's strategy is based on the following aspects:

Creating value for the companies that apply IBM's integrated business and it innovation products and services

Exploiting growth opportunities by taking advantage of the company's strong position on the market

Focusing on higher value software and services in order to create competitive advantage

Becoming the world's leading globally integrated corporation

Anticipating the needs of the market

The company's strategy is based on the fact that it is more efficient and profitable to orient the company's activity towards integrated business solutions, instead of focusing on point products that only serve some customer segments and that are characterized by increased costs. This is because the company's customers are interested in increasing their business's value through the it segment.

In order to improve its position on the market, IBM has developed a series of initiatives designed to help the company grow on several markets. These initiatives include: Smarter Planet and Industry Frameworks, Growth Markets, Business Analytics, and Cloud Computing.

The company faces strong competition in all its business segments: global services, software, systems and technology, and global financing.

In its attempt of increasing its market share, IBM is accused of intending to develop a monopoly position on the European market, which would not be beneficial for its competitors and customers. These competitors have filled several complaints regarding this situation, which determined EU commissions to start investigations in this case.

Monopoly Characteristics of IBM

The monopoly situation is characterized by a company that has increased control over a product or service in a specific market, in comparison with the control exerted by competitors. The situation is considered to be dangerous because in this case the company that has the monopoly establishes and influences the price of the product or service in case and the access conditions to that product (Linux Information Project, 2006). It is not an understatement to consider that all companies, no matter their field of activity, tend to such a situation.

Any company intends to gain as much market share as possible, by implementing a series of strategies. Some of these companies use their competitive advantage into increasing their number of customers, other companies use their financial power in expanding their geographical area, while other companies acquire their smaller competitors in order to reduce competition on that market and to increase the power.

Therefore, it is the duty of the organizations and institutions in countries where such situations occur to establish rules and regulations that do not allow for monopoly competition to take place, and to monitor and control the activity of the companies in these countries' markets and the compliance to the established rules.

This is also the case of IBM. The company has been accused in a number of times of abusing its situation in the market in order t prevent its competitors from performing their activities. The position of IBM on the U.S. And on the EU market threatens the activity of smaller competitors. Since its establishment, IBM has significantly improved its position on the market. Some may say the company has earned its position on the market, as this is the result of IBM's work and advantages brought to its customers. In other words, one may assume that it is the company's merit to benefit from such a strong position on the market and that the company should not be limited from exerting its power, given the fact that it has earned it through legal means.

But international institutions and the company's competitors seem to disagree. For example, the EU has very strict laws regarding anticompetitive behavior. Companies that intend to merge in the European space must first apply for the approval of the EU in this direction. The commissions that investigate such issues must determine whether the new company is likely to exceed a certain percentage of the European market is case of a merger or acquisition. Based on the findings of the investigation, the EU commission can disapprove the merger, can approve the merger, or can approve the merger while maintain the monitoring of the company in case.

In the case of IBM, the situation does not imply that other competitors will not address the market in which IBM is activating. But their power is considerably reduced in comparison with that of IBM. The company can influence the prices on the market by establishing lower price levels that other competitors cannot provide. This is considered to be disloyal competition and is not accepted within the EU, because it denies equal opportunities for all competitors, no matter the field of activity they address.

Also, in this case, IBM dictates the strategic directions that its competitors must follow. This is because the company's market power allows IBM to set the rules in this industry, determining competitors to follow them, instead of developing their own strategies intended to create competitive advantage. It is therefore difficult to anticipate the strategic moves of IBM by competitors, so that they are unable to efficiently counteract these moves. This situation also affects the customers of these companies.

However, one must understand that anticompetitive laws in the U.S. And in the EU do not state that monopoly positions are against the law. But the stipulations of these laws strongly forbid certain behaviors of companies that are considered to threaten market conditions, competitors' opportunities, and customers' possibilities.

The most important aspect regarding the situation of IBM is represented by the analysis of its market power. This factor allows to company to impose its conditions several markets and to influence the structure of the market in case. There are several manners in which IBM exerts its market power in order to prevent its competitors from gaining market share.

For example, economic barriers are the most important types of barriers raised by IBM in relationship with its competitors. The economies of scale that IBM benefits from represent a major asset of the company in its attempt to reduce the power if competitors. The company's financial power allows… READ MORE

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