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ECO 550 Assignment 4 Long-Term Investment Decisions Bank of America Decisions for the Future






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Expansion and Merger
Expansion and Merger
ECO 550 – Managerial Economics and Globalization
Expansion and Merger
The essence of retail marketing is developing merchandise and services
that satisfy specific needs of customers, and supplying them at prices
that will yield profits.
Competition in the today's business marketplace often demands that
organizations merge with each other to remain competitive and increase
revenue, profits and market share. Others may be looking to
consolidate their operations to achieve economies of scale and
standardization of processes. Mergers and acquisitions occur when a
company buys, sells, or combines with another company within the
same country or across borders (Luthans & Doh, 2009).
Government regulation is constantly present in our lives. This paper is a
continuation from assignment two and will look at how government
regulations affect expansion and merger in the retail industry. “Mergers
can be competitive strategies, or they can be attempts to create firms
large enough to exercise market power” (Michaels, 2011). Successful
mergers are a combination of four critical components: culture, business
practices, technology, and time. Bringing these elements together
requires careful planning and coordination. The longer it takes the more
costly it will be, and the potential for failure will be greatly increased.
Explain why government regulation is needed, citing the major reasons
for government involvement in a market economy.
Government regulation is needed in the retail industry to make sure that
the public’s interests are maintained and preserved and to see that
market failure is controlled. While the retailing industry itself has been
present through history in our country, it is only the recent past that has
witnessed hordes of players leaping onto it.

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Government regulations are needed so businesses are accountable for
all decisions they make. Regulation protects small businesses and
allows them to grow, creating economies of scale. In retail, a monopoly
exists when a business can fix prices and keep out competition. This is
unfair to the consumer. The government makes rules making
monopolies generally illegal. This is done through antitrust laws.
Although free market economies are mostly based on the free choices of
the buyers and consumers, other reasons government intervention is
needed is to prevent the creation of monopolies. If a monopoly is a
natural monopoly or a monopoly that doesn't seem to make too much
profit, it can be left alone, but if a monopoly has significant power and
makes too much profit, government must restrict its market powers.
Otherwise, the monopoly could control prices and output with no
restrictions at all. Also, sometimes government must set price ceilings or
price floors in order to try to fix the problems of shortages and surpluses.
By setting these price levels, the government helps bring the price and
quantity back to equilibrium position, where the quantity demanded
equals the quantity supplied. Pricing strategies that are used in the retail
industry market are also affected by government regulations.
Additionally, state and local regulations also play an important role in
business. They attempt to regulate in three areas (1) controlling entry
into business, (2) regulating competition, and (3) preventing consumer
fraud (Samuels, 1998). When government regulates the business
market, creditability of services and products are valued and the
interests of consumers will be met through the regulations since high
standards will be set by the governments. This will raise the level of
business standards. One of the main reasons for government regulation
of the operations in the market is to boost the economic status of a
country. This is based on the fact that the government detects the price
levels that will be placed by the different organizations on the goods that
will be produced. Through this involvement, the operations in the market
economy are set to reflect the needs of the customers and the greater
good of the nation (Michael & Coglianese, 2004).
Justify the rationale for the intervention of government in the market
process in the U.S.
Government intervention is the process where the government monitors
the market activities that are carried out in a market industry in terms of

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the business decisions that are undertaken by the corporations. The
global financial crisis of 2007 to 2008 brought about numerous
interventions by governments. In the U.S., debate grew heated
regarding government intervention in the market system, as intervention
can cause disruptions, including extending a recession or depression, as
the market has a tendency to adjust naturally equalizing inadequacies,
all the while Congress approved bailouts to financial institutions
including Fannie Mae, loans to keep auto manufacturers out of
bankruptcy, and an $850 billion economic stimulus bill. The goal was to
stabilize the markets, reverse high unemployment and prevent the
Second Great Depression (Lacoma, 2012).
The role of government in business in the United States has changed
and evolved since the country was born. The government is involved in
business to provide public goods; to protect public health and welfare; to
stabilize the economy; to protect businesses, consumers, investors, and
competition; to conserve the environment; to regulate working
conditions; and to protect business property.
The United States is a market that is known to be a center of global
business operations. The intervention of the government on the business
operations that are to be undertaken in the market is very significant to
the United States and the global economy. On one hand, government
intervention in the economy is considered significant to protect against
the worst elements of capitalism while on the other hand, some think that
such regulations are unnecessary invasions of their freedoms.
Government intervention in the market process in the U.S. allows
businesses to remain in private hands while removing some of the worst
abuses of pure capitalism. Secondly, a government intervention protects
the consumers, producers, and the community as a whole. Finally,
limited government involvement prevents crisis such as inflation,
unemployment and depression. Free markets are not immune to
fluctuations in the level of economic activity and as a result of these
market imperfections, the government intervenes and tries to maintain
an order of balance in the economy (Shayan, 2012).
Assuming that the merger faces some threats and that the industry
decides on self-expansion as an alternative strategy, describe the
additional complexities that would arise under this new scenario of
expansion of capital projects.

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