Competition in Local Markets: Exploring Advantages & Challenges - Essay Sample

Introduction

According to Dalkir & Boulton, (2018), two or more companies based in the same locality and which deal in the same product, are bound to compete with each other. It happens because they deal with the same goods, and they have to supply their products to the same consumers. Due to their location in the same place, the demand for their products is the same. It leads to the development of rivalry and competition between them. Competition is usually a useful feature in economics. It is the case because these two companies develop strategies to surpass their competitors. It leads to these companies producing products that are of superior value and quality compared to the times when they lack the competition.

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The production of better products is the main benefit associated with the competition. With this kind of competition, the consumers bound to benefit more. The presence of such companies also prevents the likelihood of monopoly developing. A monopoly usually established when a single company is responsible for supplying all the products which the consumers require. It is the case because there will be reduced costs for the goods. The reduction in the values of the products meant to attract more consumers to the company compared to the other company. It causes the companies involved to even run out of business because of the lack of making profits. Office Depot company and Staples Company are two companies in the United States which mainly deal with supplying materials used in offices.

These two superstores have asserted their dominance in the office supplies. It has been the case as they have led to the closure of several businesses. The two have, over time, competing against each other, and this has ultimately led to their expansion. They have opened several different branches. There are several issues encountered by these two superstores due to their competitiveness: first is their reduction of prices in places where they are both located. It necessitates the need for a merger.

The merger between the two companies is beneficial as it means to reduce the competition between the two significantly. With this merger, however, there is a likelihood of creating a monopolistic company. The company which I, as the firm manager, will create will be the only provider of the office supplies. With this, my firm will be able to attain maximum benefits from the sale. It arises because there will be no other companies that will be producing the same product. It will ensure that all the demand from the consumers will direct at my firm. With this, I will acquire all the benefits despite the maximum prizes which we may put in place.

The Keynesian Theory

The Keynesian theory is a hypothesis that describes the significance of demand from consumers in the financial world. The method illustrates the need for the government to increase demand. They will carry this out by developing strategies that will lead to the rise and growth of the market for the products. The new Keynesian, on the other hand, illustrates how the two variables, which are wages and prices of the products, have a significant effect on the economy. As the firm manager, I will make use of the new Keynesian theory in the merger of Office Depot and Staples. With the knowledge obtained from this theory, I will able to solve the many issues which I may encounter. Principles from this theory, for instance, on how wages and price variables are sticky.

The New Keynesian theory illustrates that these two variables can be adversely affected by economic conditions encountered often. Such situations that may affect the wages and prices of products include workers fired from their jobs and the effects encountered due to laws regarding finances. Due to the merger, there will be a resulting loss of employment of some employees. It will be the case because of the aggregation of the two companies into one. It requires fewer employees. The firm which I am managing is also liable to facing compliance risks. It will be the case because of the merging of the two companies, which are guided by different guidelines.

The fact that the firm based in various locations is also another issue that I face. The rigidity of prices is another issue that I may encounter. The new Keynesian theory seeks to address the price issue. This issue demonstrated by the slack nature of costs and what the cause of this slowness is. This theory also aims to establish the origins of the nonsuccess of the markets. It has been an issue for me because the merger has not been producing the desired results. The theory explains the laxity of the markets to pick up. Due to the monopolistic nature of the firm I run, we usually reach the price of the particular product. With this price set, we typically trust the number is sales, which have realized as the limit.

Neoclassical Economic Theory

The neoclassical economic theory is one that describes the significance of demand as well as supply. It shows how demand and supply are determinants of the production of the products, and they also determine the prices allocated to these products and the measure of the expenditures made by consumers to these products. I can use this theory in my firm when faced with a decrease in the demand for the offices' store supplies. It ultimately leads to a reduction in the number of our products. This theory enables me to understand the most critical factor which determines the value of a product is the utility to our customers.

It allows me to recognize that the essential element for our customers is the ability of the product to fulfill their needs and therefore satisfy them. With this information, I can increase the effectiveness of our products to meet the needs of the consumers. It allows our products to be in demand because the consumers will buy products they consider satisfactory. The neoclassical theory helps me understand that, in most cases, the product produced has a more significant value in comparison to the resources used to develop it. This merger, however, goes against the neoclassical theory. It arises because the merger established because of the need for reduced competition between Office Depot and Staples.

The argument on neoclassical economics theory is in contrast to this. This contrast arises because this theory supports competition. The support is due to the belief that competition is beneficial to any particular economy as it allows for the maximum distribution of resources in the marketplace. It is because of the existence of the variables of demand and supply in the market. These variables lead to the establishment of a balanced economy. This theory insists on the importance of savings in a company. It is because when a company has savings, it can start other branches in other areas. With the establishment of many offices, I can grow the business, which will eventually develop to be a global superstore.

The Friedmanite Theory

It is considering that the projected impact of the merger being negative to the consumer. It is referring to the monetarism theory that was presented by Milton Friedman. It is an economic theory that illustrated the relevance derived from money supply being a vital factor in assuring economic growth - considering the projected impact of the merger between the two firms being increases in relative market preferences. There are consequent increases in market and stock prices with the consequent adverse impact on consumer welfare. All these derivations are contrary to what the merger speculations were. The Friedmanite economic theory then suggests the relationship between consumer demand for products to that of the established money stock within a given firm's portfolio.

The money supply is a determinant that is controlled by the Central banks that then determines relevant variables subjected to commodity. The merger between Staples and Office depot would then offer more control by the firm on commodity prices. Equivalent changes observed on the money supply are relative determinants to the prices of commodities supplied by the resultant firm post the merger. It is considering that increases in money supply result in equivalent increases in demand. It is considering that major related concerns to the merger being control presented on commodity prices.

The concepts presented by this theory could then use to justify that the firms have no ultimate control over pricing policies established. The central bank is having control over the levels of money supply presented within the economy. Allocating specificity on the purchasing power allocated to potential consumers or users to products the firms specialize in providing and then considering that there would be a preference for the products from the firm with limited options in the acquisition of such commodities.

Concept of Inflation Rates

Attention allocated to the inflation rates realized in association with the actualized levels of the money supply. The management then decided to address these risky instances by the strategical approach to monitoring inflation rates. Inflation has subsequently observed to relay several effects on different economic aspects that would relatively impact profitability at the firms. As stated earlier, the relative effect transmitted on purchasing power to the firm's accessories. Concerning the expenses incurred in all production and retail processes, the company would then desire to rationalize prices to their commodities to still certain profitability.

It is considering limited competition, these adjustments made on the process of equipment - consequent increases in prices of commodities to address increases in inflation rates. Relevant to the merger, the overall cost of implementing these adjustments concerning the economic stature of the firm would be minimal. It is a result of relative consumer adaptation to the changes arrived at with the certainty in demand for their products. The firms would then have increased capabilities in sustaining all their operational costs and easing on the adaptation of relevant acquisition policies that would provide a better basis for requesting better deals in making purchases to raw materials.

It is after the realization of an equivalent increase in the cost of raw materials with a relative increase in operation cost realized. Theoretically, this can be justified consequently effected to the final consumer. It is considering that the total cost of production would be rational, which is usually the basis for developing eventual prices to the final commodities. Prioritizing on inflation then enables establishments on the levels of investment freedoms promoted to this line of business and offering better opportunity to certainly financial stability with the realized increase in performance. It creates a sense of preference from the promise that the firms offer in providing more profits to investors.

Consequently, consumers presented with an extensive level of spending on the firm's products. There is an increased desire to purchase larger quantities of the firm's commodities with the surplus in monetary resources present in the economy. It then offers a better position for the firms to maximize profitability with the establishment of minimal competition from other rival entities. I am considering that there would be in existence of better pricing deals in the given accessory market.

Concept of Interest Rates

There is another realization being the relative impact on interest rates resulting from the concept of the money supply. An increase in money supply relates to a decrease in interest rates realized within the given period. Such a status possessed by financial institutions. Concerning the purchasing freedom and muscle that consumers would then possess in acquiring commodities. Th...