The UK has adopted a relatively open market policy towards takeovers of domestic companies by ones from overseas. True, takeovers have to be in accordance with competition legislation, namely the 2002 Enterprise Act, or, in the case of takeovers affecting competition in the UK and at least one other EU country, the EU 2004 merger control measures and Article 102 of the Lisbon Treaty. The EU regulations disallow mergers if they result in ‘a concentration which would significantly impede effective competition, in particular by the creation or strengthening of a dominant position’ (see Economics (7th ed) pages 370–3 or Economics for Business (5th ed), pages 443–50). The UK legislation is similarly concerned with a substantial lessening of competition. But in both cases, competition policy is not concerned with whether the takeover is by a foreign company rather than a domestic one. So should we be concerned?
Interest in this question increased recently with the takeover of Cadbury by Kraft. Many saw it as yet one more example of British companies being taken over by foreign ones. Other examples include the takover in 2008 of Scottish and Newcastle (brewers of Courage, John Smith’s, Fosters and Kronenbourg) by the Carlsberg/Heineken consortium; the sale of the Rover group, with Minis now made by BMW, and Jaguar Land Rover now owned by Tata Motors of India; and the takeover in 2007 of Corus, the Anglo-Dutch steelmaker, by India’s Tata Steel. One of the key complaints about foreign takeovers is when they result in job losses. Although Kraft gave assurances that the Cadbury plant at Keynesham, near Bristol, would remain open, as soon as the takeover was completed, Kraft announced the closure of the Keynesham factory. Tata Steel earlier this year decided to mothball its steelworks at Redcar, on Teesside. It may never re-open.
But there are many arguments on either side about the desirability of takeovers by foreign companies. On the positive side, they may result in investment in new plant and new products and a faster growth of the company. This could result in more employment, not less. They may bring in foreign expertise and give access to new technology; they may be able to achieve various economies of scale through joint operations; productivity may increase. As the article from The Economist states:
For 30 years the consensus has been that Britain has more to gain than to lose from its open embrace of globalisation. … Britain has enjoyed a strong inflow of foreign direct investment. It has consistently attracted more than any other European country. A report on British manufacturing for Policy Exchange, a centre-right think-tank, notes that the openness of the economy “makes Britain a magnet for foreign companies looking for acquisitions on which they can build their manufacturing operations” for Britain and elsewhere.
On the negative side, there may indeed be job losses as ‘rationalisation’ takes place. Head office functions and key research facilities may move abroad. Hostile takovers may result in the stripping of assets for short-term gain, thereby undermining the loing-term viability of the company.
The article from The Economist explores these issues.
Article
Small island for sale The Economist (25/3/10)
Data
A summary of cross-border mergers, acquisitions and disposals by UK companies and foreign companies in the UK can be found at: Mergers & Acquisitions data Office for National Statistics
For statistical bulletins and press releases see: Mergers and Acquisitions involving UK companies Office for National Statistics
For international data on foreign inward and outward direct investment see: Interactive database on Enterprise and Investment UNCTAD
See also: World Investment Report UNCTAD
Questions
- Explain what is meant by the ‘competition for corporate control’. In what ways does this competition affect consumers?
- From the point of view of a multinational company, assess the strategy of acquiring foreign companies by hostile takeovers.
- Has the UK benefited from an open policy towards inward investment and foreign takeovers of UK companies?
- How do short-term flows of funds prior to a takeover impact on the takeover process?
- Compare the trends in inward investment to the UK with outward investment by the UK.
- Examine the arguments for and against the government blocking takeovers if they threaten jobs.
The European Commission has received three complaints against Google for anti-competitive practices. The complainants are Microsoft’s Ciao, UK price comparison site Foundem and French legal search engine ejustice.fr
“The Commission has not opened a formal investigation for the time being. As is usual when the Commission receives complaints, it informed Google earlier this month and asked the company to comment on the allegations. The Commission closely cooperates with the national competition authorities. No further information can be given at this stage.”
Although the complaints are different (see articles below), the common feature is that Google has used its dominant market position to the detriment of competitors and consumers. Not surprisingly, Google has vigorously defended itself against the accusations.
So just what is the case against Google? Are the complaints justified, or are they merely competitors whinging about their relative lack of success? The following articles look at the facts and the issues.
EU launches antitrust inquiry into Google ‘dominance’ Times Online, Mike Harvey (24/2/10)
Google Says It Faces Competition Complaints in Europe BusinessWeek, Brian Womack and Joseph Galante (24/2/10)
Google faces anti-monopoly probe by European Commission Guardian, Andrew Clark (24/2/10)
Why Europe could prove Google’s undoing Guardian, Bobbie Johnson (24/2/10)
Analysis: not evil? Are you sure? Times Online, Mike Harvey (24/2/10)
Google faces Brussels antitrust scrutiny Financial Times, Richard Waters and Nikki Tait (24/2/10)
EU Opens Antitrust Investigation Into Google. Microsoft’s Fingerprints Are Everywhere. Washington Post, MG Siegler (23/2/10)
Google Hit With Antitrust Probe in Europe PC World, James Niccolai (23/2/10)
Is Redmond The Puppet Master In Google EU Anti-Trust Investigation? search engine land, Greg Sterling (23/2/10)
Google Under Investigation by European Union PCMag, Mark Hachman (24/2/10)
EU inquiry points the searchlight on Google’s methods Telegraph, Kamal Ahmed (24/2/10)
Google under investigation for alleged breach of EU competition rules Telegraph, Kamal Ahmed (24/2/10)
Questions
- What is the case against Google? Does this make it in breach of EU competition law?
- Assess Google’s response.
- Is Google “doing anything to choke off competition or hurt our users and partners”?
- How could competition be increased for Google? Is this likely to happen?
The following article by Will Hutton looks at the relative efficiency of private- and public-sector organisations. The public sector is typically characterised as inefficient and providing a poorer level of service and poorer quality products than the private sector. After all, the private sector is driven by the profit motive, where providing a good service would seem to be a key ingredient in making more profit.
Yet when you look around you, this portrayal can be seen as far too simplistic. On the one hand, much of the public sector has been forced to be efficient, following many years of tight budgets. At the same time, many in the public sector are keen to deliver a good service, not only because that is required by their employers, but because they are motivated by a sense of public duty and professionalism. On the other hand, there are many market failings in large parts of the private sector, where monopoly power, asymmetric information and externalities are rife. Read the article and see if you agree with Will Hutton’s analysis.
These money-grubbing companies make the public sector look good Observer (1/11/09)
Questions
- What are the incentives to encourage either private-sector companies or public-sector organisations (a) to be efficient in the sense of cutting out waste (X-efficiency); (b) to be allocatively efficient; and (c) to provide a high quality of service to customers / clients / patients / students, etc.?
- What market failures may prevent private-sector companies from achieving (a) to (c) above?
- What organisational failures may prevent public-sector organisations from achieving (a) to (c) above?
- How is Goodhart’s Law relevant to the setting of performance targets in both the private and public sectors?
In February 2009, the world’s largest concert ticket agency, Ticketmaster, and the world’s largest concert promoter, Live Nation, announced that they intended to merge. The deal would have been worth around £550 million. This immediately sparked concerns that the new company would have such power in the market that ticket prices would rise. On 10 June 2009, the Office of Fair Trading, in line with the 2002 Enterprise Act, referred the proposed merger to the Competition Commission.
On 8 October 2009, the Competition Commission published its preliminary findings that “the creation of that situation may be expected to result in a substantial lessening of competition (SLC) in the UK market for the primary retailing of tickets for live music events”. The following articles look at the findings and the competition issues. You will also find links below to the Competition Commission press release and the Provisional Findings Report.
Competition body opposes Ticketmaster and Live Nation merger Guardian (8/10/09)
Competition watchdog vetoes Ticketmaster deal Times Online (8/10/09)
The Competition Commission has ruled against the proposed Ticketmaster / Live Nation merger MusicWeek (8/10/09)
British Regulator Objects to Ticketmaster Merger New York Times (8/10/09)
See also the following documents from the Competition Commission:
Press Release
Provisional findings report
Questions
- How would the proposed merger benefit the two companies concerned?
- How would it affect CTS (the second largest ticket agent in the world)?
- From the consumer’s perspective, what would be the potential advantages and disadvantages of the merger?
- What additional evidence would the Competition Commission require to make its final judgment?
Tea prices have soared in recent months. Explanations can be found on both the demand and supply side. But while this might be bad news for tea drinkers, the news is more mixed for tea growers. So just what are the causes and consequences of the price rises? The following linked articles look at the issues.
Tea prices hit record high as supplies tighten Financial Times (19/8/09)
No break for Britons as tea price set to soar Scotsman (19/5/09)
Tea prices hit record high (video) BBC News (21/8/09)
Price of cup of tea goes up (video) BBC news (17/8/09)
Africa Tea Prices Climb to a Record on Dry Weather Bloomberg (20/8/09)
Kenya Tea Prices Hit Record High Before Ramadan FlexNews (19/8/09)
African tea prices ‘to extend gains’ China People’s Daily Online (18/8/09)
Sri Lanka to revive all closed tea factories ColomboPage (24/8/09)
Land usage should be flexible: Tea panel The Economic Times of India (24/8/09)
For tea price data see:
Tea Monthly Price Index Mundi
Questions
- Identify the factors on the demand and supply sides that have led to the rise in tea prices. Draw a diagram to illustrate your answer.
- Under what circumstances will farmers benefit from a rise in tea prices? What is the relevance of the market price elasticity of demand to your explanation?
- If the price of tea in the shops rises, will this necessarily mean a rise in the price to tea growers and in the wages of workers on tea plantations? Explain using concepts of competition and market power.
- What will be the effect of using more land for growing tea on (a) the price of tea and (b) the incomes of tea growers?