Blackwell Theme 2

Question 1

Market power

Answer 1

The ability of a firm to influence or control the terms and conditions on which goods are bought and sold.

Question 2

Market dominance

Answer 2

A measure of market share compared to competitors

Question 3

External growth methods

Answer 3

Merger and acquisition

Question 4

Merger(external)

Answer 4

This is where two companies join together to form a new larger business

Question 5

Acquisition(external)

Answer 5

This is where control of another company is achieved by buying a majority of its shares.

• shares have to be 51% and above for control over a business

Question 6

Benefits of external growth

Answer 6

• may gain new management with different skills
• will result in an increase in market share ( and market power/dominance)
• may be able to meet customer needs more effectively with combination of resources
• may experience economies of scale

Question 7

External growth disadvantages

Answer 7

• May suffer from diseconomies of scale due to the size I.e. communication problems
• may take on extra debt that the business could struggle to repay if the strategy isn’t successful(business/shareholders)
• could result in redundancies(employees)
• could result in higher prices(customers)
• ## could result in a dominant business dictating terms and conditions (suppliers)

Question 8

Diseconomies of scale

Answer 8

Output rises and unit costs go up

Question 9

Organic growth examples

Answer 9

• opening new stores
• launching new products
• employing more workers
• increasing productive capacity( opening factories)
• investing in new technology
• launching existing products into new markets(geographically)

Question 10

Organic growth advantages

Answer 10

• Less risky than growing externally( less debts)
• could be financed by retained profits
• is a sensible/steady way of growing a business

Question 11

Organic growth disadvantages

Answer 11

• Growth rate could be too slow to satisfy shareholders
• will be difficult to achieve if the market is not growing or is shrinking
• hard to increase market share if the business is already a market leader

Question 12

Regulators

Answer 12

European Commission regulator and the Competitive market authority(CMA)

Question 13

What does the CMA do?

Answer 13

• Investigates mergers which could restrict competition
• investigates where there may be abuses of dominant positions
• brings criminal proceedings against individuals who commit the cartel offence( collude to decrease the competition in a market)
• enforces legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice

Question 14

What is the CMA’s main aim ?

Answer 14

To promote competition for the benefit of the consumers, both within and outside the UK. There aim is to make markets work well for consumers, businesses and the economy

Question 15

CMA sanctions

Answer 15

• firms can be fined up to 10% of their global turnover
• customers and competitors of the firm(s) can sue for damages caused by anti- competitive behaviour
• individuals can be disqualified from being a company director
• CMA can fine individuals, such as a director if they fail to comply with the CMAs requests for information provision

Question 16

Cartel offence examples

Answer 16

Price fixing, market sharing, bid rigging

Question 17

Impacts of regulation

Answer 17

• encourages businesses to compete to gain customers I.e. by producing better quality goods
• results in more choice for customers
• results in better value for customers
• results in more business operating in a market
• results in better terms for suppliers
• less abuse of dominant positions

Question 18

Economic indicators

Answer 18

GDP
Inflation 
Interest rates 
Exchange rates
Employment figures
Balance of payment equilibrium

Question 19

GDP

Answer 19

• gross domestic product

- the total value of output produced in a year as a percentage

Question 20

Economic growth meaning

Answer 20

Percentage change in GDP

Question 21

Ways that the government can facilitate economic growth

Answer 21

• Encourage investment in physical capital by offering subsidies or lowering taxation
• improve infrastructure e.g. transport links so that raw materials are delivered faster and employees can get to work quicker and produce
• improve the quality of human capital by investing in Education ( higher skilled workers more output)