Question

Mega Corporation and BIG Enterprises are sugar producers in Brazil. The two companies decide to merge and become one new company called Mega-Big Corporation. If they complete their merger the new firm would control more than 80% of the market share in the country, and thus would be classified as a monopoly. Suppose you are hired by the Brazilian government to debate on whether the government should step in to limit the formation of the monopoly. Discuss pros and cons of the government action, and use the concepts of "efficiency" and "equality" in your arguments. Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

Answer 1

Introduction:-

In the case study, the concepts of monopoly and the effects on markets is correctly explained. A monopoly is a company which exercises the sole rights to sell a product or a service in the market. The resultant of this is that the market becomes polarized and can be governed by one player who can charge disproportionate amounts of money and earn revenues which hinder economic progress and social welfare.

Across most countries, laws have been established to discourage the practices of monopolies which eliminate competition in the market structure and tend to have a negative effect on market equilibrium respectively.

Case Specifics:-

Monopolies can be described as restricting free trade and tend to have harmful effects on societies. They tend to have market structures which do not consider changing needs of consumers and continue supplying products to earn maximum revenue at a price that at most times is unjustified.

In the case, therefore careful assessment would be required to eliminate the monopoly from the market and allow for normal functioning. As an advisor, the pros and cons of the decision are as explained in detail.

Pros of Government Intervention and Restricting the Monopoly :-

The two companies that exist, deal in the sale of an essential food commodity which is sugar. Sugar as a commodity will always see constant demand because of its nature of being an essential commodity which is used by households and industries alike.

The resultant of a monopoly in this sector could result in increased retail inflation and soring prices that could have an overall effect on the economy of the region. As a result, the decision to restrict the monopoly is actively required so that a level playing field can be established and both producers of sugar and consumers do not get impacted by the increase in control of market share by Mega-Big Corporation respectively.

Thus restricting the monopoly would have the following effects:-

• Price of Sugar Which is an essential product remains in control.
• Retail Inflation can be maintained which is very essential for any economy.
• It will ensure that producers of raw materials of sugar i.e. sugarcane do not have to sell their products to limited. number of buyers which can restrict the prices.
• It ensures that consumers buying capacity is not reduced since sugar is an essential commodity.
• It brings in equilibrium in the markets by removing barriers to trade and protects small producers

For example:- If the monopoly came into existence, it could largely control the entire market share and sell an essential item like sugar at its decided price. The resultant would be that small producers of sugars would also fail and at the same time consumers would also majorly suffer because of reduced demand respectively.

Cons:-

While, any advisor would advocate for removal of monopolies in an essential sector, yet there exist some cons of the exercise. Some companies gain natural advantage on selling a product example the petroleum industry. The resultant is that, the cost of operations is relatively lower and the government cannot do much to control such natural monopolies.

.Sometimes, monopolies are good for the market also. They can produce goods at a large scale since they control the entire demand and thus can offer prices at a lower rate than a competitive market structure would. A big example of this are government owned monopolies in power, electricity, water and other utility industries which could fail if there was healthy competition in the sector respectively.

Please feel free to ask your doubts in the comments section if any.