Business Economics

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In monopolistic competition the individual firms have limited control over their product pricing decisions. The firms are less efficient than the purely competitive firms because they price their goods and services higher than marginal cost. Suppliers in a monopolistically competitive market produce below their capacity (www.boundless.com/economics/). Although the consumers do not pay economic profit to the seller they do not get the goods or services at the minimum possible cost. The consumers, however, benefit from the availability of a wide variety of products from the different sellers (Welch and Welch, 2007).

In an oligopoly market structure the firms influence each other when pricing their products. Oligopolies are not productively efficient because they produce where P > minimum ATC. They are also not allocatively efficient because they produce where P > MC. “This means that firms in an oligopoly structure neither produce in the least costly manner nor produce the right amount of product according to society’s needs” (welkerswikinomics.wikifoundry.com/). The prices that are paid by the consumers are inclusive of an economic profit to the seller.

In a monopoly market structure the supplier has relatively more control over its product pricing decisions when compared to the other market structures. Entry of new competitors is blocked. Monopolies are productively inefficient because they produce where P > minimum ATC. They are also allocatively inefficient because they produce where P> MC. Consumers pay prices that are inclusive of a seller’s economic profit (Welch and Welch, 2007).

QUESTION 3

EXAMINE THE EFFECTS ON BUSINESSES AND THE ECONOMY OF GOVERNMENT’S INTERVENTION IN LABOUR MARKETS THROUGH THE USE OF MINIMUM WAGE LAWS AND REGULATIONS THAT MAKE IT MORE DIFFICULT TO LAY OFF WORKERS

THE THEORY OF GOVERNMENT INTERVENTION IN LABOUR MARKETS THROUGH MINIMUM WAGE LAWS

Minimum wage laws interfere with the free-market conditions by preventing wages from falling below certain levels (Welch and Welch, 2007). Keeping the wage levels higher than they would otherwise be results in unemployment. The buyers in this market are the businesses and the sellers are the workers. The minimum wages encourage employers to substitute away from the low skilled workers to automated production processes and skilled labour.

THE EFFECT OF MINIMUM WAGE LAWS ON BUSINESS

An American Legislative Exchange Council publication (2014, pp. 2) argues that a government imposed higher minimum wage has the effect of increasing the operating costs of small businesses. There are two major effects of minimum wage laws on business. The first one is that it may force the businesses to substitute capital intensive technologies for the workers. However, capital intensive technologies require large capital outlays which most small businesses cannot afford. Secondly, the minimum wage laws may force businesses to try to reduce their labour costs by reducing the number of employees. This would result in a reduction in the number of customers served. Some businesses may also put their employees on short time working arrangements by reducing the employees’ working hours. They may also make downward adjustments to non-wage benefits such as medical cover or training.

THE EFFECT OF MINIMUM WAGE LAWS ON THE ECONOMY

According to an American Legislative Exchange Council publication (2014, pp. 5) employers “cannot fully absorb the costs of an increased mandated wage rate by cutting their workforce because they need that labour to successfully run their businesses”. This forces the firms to pass on to the consumers the costs of a minimum wage hike, thus “increasing inflationary pressure” (Wilson, 2012). However, in a global economy the competitors that pay wages at rates that are less than the mandated minimum wages will be able to sell their products at a cheaper price and thus capture a greater share of the market. High minimum wages may result in the closure of small businesses and slow down the growth of an economy.

MINIMUM WAGE LAWS AND REGULATIONS THAT MAKE IT DIFFICULT TO LAYOFF WORKERS IN ZIMBABWE

The legal provision governing minimum wages in Zimbabwe is section 20 of the Labour Act [Chapter 28:01] which empowers the Minister of Labour to gazette minimum wages. Different employment councils set the minimum wage rates through a sectoral collective bargaining process. The general working conditions of employees are regulated by the government on an industry specific basis. Compliance with the minimum wage regulations is regulated by the trade union (s. 27), works councils (s. 25[A]) and workers committees. All the three parties are controlled under the power of the Minister of Labour (s. 21). There are severe legal sanctions if compliance with the regulations is lacking. Individuals who feel that they are earning less than the minimum wages can complain to the Ministry of Labour officials.

Zimbabwe has stringent procedures to be followed when an employer wants to dismiss or retrench employees. These are contained in the Labour Relations (Retrenchment Regulations), SI 186 of 2003 (for the retrenchment of less than five employees). The retrenchment of five or more employees is regulated by the Labour Act (s. 12C and 12D).

QUESTION 4

EXAMINE THE POSSIBLE ANTICOMPETITIVE EFFECTS OF MERGERS AND ACQUISITIONS AND EVALUATE THE EFFECTIVENESS OF EXISTING REGULATIONS AIMED TO REDUCE ANTICOMPETITIVE PRACTICES IN ZIMBABWE

Mergers and acquisitions are increasingly being used by firms worldwide to achieve rapid inorganic growth. Welch and Welch (2007) identify the three types of mergers as horizontal, vertical and conglomerate. In a horizontal merger firms producing similar goods or services come together. These firms are competitors in the same market. An example of a horizontal merger that was authorised by the Competition Commission of Zimbabwe in September 1999 is the merger between Rothmans of Pall Mall (Zimbabwe) Limited and British American Tobacco Zimbabwe Limited (Kububa, A. 2004). A vertical merger occurs where firms that have a buyer – seller relationship combine. An example of a vertical merger in Zimbabwe is the acquisition of Zimboard by PG Bison(Mauritius) (Qaqaya, H. and Lipimile, G., 2008). In a conglomerate merger the merging firms are neither competitors nor buyer-sellers. These mergers can be categorised as product-extension mergers, market-extension mergers or pure conglomerate mergers. A product-extension merger occurs where the combining