Industrial Organizational Economics-Free-Samples for Students

Question: Discuss how does the definition of market play a vital role in Oracle- PeopleSoft versus DOJ case. Answer: Introduction The conceptual and theoretical framework of economics has changed and incorporated different modification over the years, with the changing global economic scenarios. One of the primary conceptual framework in economics, especially in Microeconomics is the concept of market. In terms of economics, market is defined as the forum where the supply side and the demand side players of any industry interact with each other to come to a mutually agreed situation in terms of the amount of goods and services produced and sold as well as in terms of price (Baumol and Blinder 2015). In economics, the markets are classified into several types depending upon attributes like the number of buyers and sellers in the market, the level of market power enjoyed by the buyers and sellers, the nature of the commodity or service the market deals with, ease of entry and exit from the market as well as the level of competition existing in the market. The nature of market holds considerable significance on the operational framework of the firms as well as on the welfare of the demand and the supply side players and thus for any firm to take any productive action it is of utmost importance for the firm to be clear about the nature of market in which it is venturing (Frank and Cartwright 2013). Keeping this into consideration, the report tries to highlight the importance of the definition of market in the real economic scenario, with reference to the Oracle-Peoplesoft antitrust case as is discussed in the article named Oracle wins antitrust case (Cnet.com 2018). Article Summary As can be seen from the concerned article one of the giants in the enterprise software market, the Oracle had to face a bar from taking over its competitor, the Peoplesoft, from the Department of Justice primarily because of the threat of decrease in competition in the industry which the DoJ perceived to be occurring following the takeover of the Peoplesoft by the Oracle. The Department of Justice defined the market in which these companies venture to be already narrow due to the presence of three big players, namely the Oracle, SAP and Peoplesoft. Given this situation, the takeover is expected to narrow down the market even more, according to the DoJ, thereby hampering the competitive aspects which can have negative effects on the consumers. However, the bar put on the takeover has been nullified by the District Judge who did not find the strategy to be anti-competitive and rejected the idea of narrow market put forward by the DoJ. The main reason behind the victory of Oracle in their takeover decision can be attributed to the lack of substantial customer apprehensions regarding the takeover and also to the argument put forward by Oracle. In their support Oracle brought forward the notion that their decision of taking over Peoplesoft would still keep them below SAP in terms of market share and size of the companies (Theregister.co.uk, 2018). However, as their perceptions go, the merger will make them competitive and capable enough to give tougher competition to SAP. This argument contradicts the idea of narrow market of the DoJ, thereby supporting the takeover decision of the Oracle. The final verdict is however still not out as the company is still about to face an investigation by the European Union (Singh 2013). Keeping these incidents and arguments into consideration the report tries to analyse the importance of the definition of the market, in the sense of economics and also the difference of perceptions of competition in the market on the decision-making aspects of the firms as well as on the regulatory impositions and legal aspects considered by the governing authorities regarding the allowance or restriction of the business decisions of the firms. Importance of the definition of market in real economic scenario As can be seen to be evident from the assertions of the article taken into consideration, the strategic decision taken by Oracle, for taking over their competitor Peoplesoft led to the creation of a debate regarding the expected changes in the dynamics in the market which the potential takeover can bring, which in turn may have considerable impacts on the welfare of the supply side players as well as of the customers in the market (Kagel and Roth 2016). The primary reason behind this debate can be attributed to the differences in the perceptions and definitions of the concerned market and its dynamics put forward by the two conflicting parties which are discussed as follows: a) Argument put forward by DoJ- The DoJ barred the takeover decision of the Oracle siting that the same would lead to a narrower market. According to their assertions, the already oligopolistic market (Comprising of three major players), post the potential takeover has the threat of becoming a duopoly market, which in turn is expected to distort the market power distribution even more, thereby brining in anti-competitive forces and hampering the welfare of the customers (Feng, Li and Li 2014). This is primarily because in the presence of two big duopolistic producers, each with huge price and output decision making power, the customers are expected to have less bargaining power. b) Argument put forward by Oracle- The victory of the Oracle however, can be attributed to the nullification of the definition of the narrow market put forward by the DoJ, by the District Judge. This is because, according to the alternative view, of the three big players, SAP enjoys bigger share of market and market power than both Oracle and Peoplesoft and is a considerably bigger company than the other two taken together (Weston 2016). In such a situation, if Oracle takes over Peoplesoft, then there is a possibility of an increase in the combined market power in the hands of Oracle, which in turn can help them to pose bigger competitive threats for SAP, thereby reducing its dominance and actually making the market more competitive. Conclusion From the above discussion, it can be asserted that the definition of market and the perception of its dynamics have considerable implications not only the business decisions of the companies but also on the regulations and restrictions imposed on them. The perceptions of market also vary from individual to individual and this in turn often gives rise to substantial debate in the real economic situations, as is evident from the recent antitrust issue faced by Oracle in their decision of taking over Peoplesoft. References Baumol, W.J. and Blinder, A.S., 2015.Microeconomics: Principles and policy. Cengage Learning. Cnet.com (2018).Oracle wins antitrust case. [online] CNET. Available at: https://www.cnet.com/news/oracle-wins-antitrust-case/ [Accessed 8 Apr. 2018]. Feng, Y., Li, B. and Li, B., 2014. Price competition in an oligopoly market with multiple iaas cloud providers.IEEE Transactions on Computers,63(1), pp.59-73. Frank, R. and Cartwright, E., 2013.Microeconomics and behaviour. McGraw Hill. Kagel, J.H. and Roth, A.E. eds., 2016.The Handbook of Experimental Economics, Volume 2: The Handbook of Experimental Economics. Princeton university press. Singh, N.P., 2013. Critical analysis of expansion strategies of SAP, IBM, Oracle and Microsoft in the area of business intelligence. InStrategic Adoption of Technological Innovations(pp. 104-125). IGI Global. Theregister.co.uk (2018).Oracle wins US antitrust suit. [online] Theregister.co.uk. Available at: https://www.theregister.co.uk/2004/09/10/oracle_wins_us_antitrust/ [Accessed 8 Apr. 2018]. Weston, S., 2016.The Legal regulation of interoperability in an oligopolistic market(Doctoral dissertation, Bournemouth University)