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Economics - Data Response January 2006

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Introduction

Economics - Data Response - January 2006 Question 1 a) The structure of the United States digital camera market over the period shown in 2003 in Extract A shows us that the market is an oligopoly. By looking at the extract it is visible that the market is highly concentrated. The top five firms (Sony, Kodak, Canon, Olympus and Nikon) account for 76.4% of the market - therefore there is monopolistic competition. b) There are many possible economic reasons as to why Kodak has continued to manufacture traditional film-based cameras, even though the company makes a loss on these cameras (due to the introduction of the superior digital cameras). One reason that Kodak continue to manufacture traditional film-based cameras could be due making money with complimentary goods, such as the film to go into the cameras and photographic paper. Kodak could also make money on developing the photographs as consumers are not able to do that themselves at home as you can with digital cameras. ...read more.

Middle

Mobile phones capable of taking digital pictures will soon outsell both film and ordinary digital cameras. Thus, even though Kodak have high entry barriers, there entry barriers are for photographic film and paper which Kodak dominate. However the new digital technology which Sony, Hewlett Packard and mobile phones have do not need photographic film or paper in order to operate. So the barriers protecting Kodak are not relevant as mobile phone manufacturers are not trying to enter the film-based market. d) Firms can grow internally or externally. Firms growing internally, also known as organic growth. This comes about from a business expanding on its own operations, rather than relying on takeovers and mergers. Internal growth can come about from expansion of existing production capacity, investment in new capital and technology, adding to the workforce, developing and launching new products and growing a customer base through marketing. Kodak's strategy on the other hand is based on takeovers rather than on internal or organic growth through investment. Kodak grows externally. ...read more.

Conclusion

Both external and internal growth can improve resource allocation and the efficient and profitable use of assets by switching under performing assets to more profitable ones. There are also disadvantages of mergers and takeovers. Many takeovers and mergers fail to achieve there aims. The financial costs of funding takeovers including the burden of deals that relied heavily on loan finance is a disadvantage. Also the need to raise fresh equity to fund a deal can have negative impact on a companies share price. Many mergers also fail to enhance shareholder value because of clashes of corporate cultures and a failure to find the all important synergy gains. There is also the issue of the 'winners curse' which involves companies paying over the odds to take control of a business and ending up with little or no gain in the medium term. Another important disadvantage of a merger or takeover is that competition policy concerns can come into play especially when there is a risk of monopoly power from vertical and horizontal integration. ?? ?? ?? ?? Economics ...read more.

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