Businesses face many economic issues that can help or hurt their bottom lines. When the managers of a business understand economic issues, they can decide how best to change or maintain operations to deal with a short- or long-term economic situation. Businesses can also learn a lot from how similar firms have dealt with economic issues in the past.
A monopoly is a company that controls an industry due to a lack of big competitors. A possible example is Microsoft's Internet Explorer monopoly in the Internet browser market. A company that is a monopoly can be sued if the government believes it is engaging in illegal practices to maintain its monopoly. This happened to Microsoft due to the practice of bundling Internet Explorer in computers. The government sued them and the company paid a fine.
A company interested in defeating a monopoly must have a product or service that is a big improvement over the monopoly. It must also dedicate lots of money to marketing the product since consumers will be used to the monopoly's products.
Mergers between two firms help companies become bigger and reach a larger market. Mergers are a positive sign of a company's financial health and usually increase the resulting company's stock price.
Layoffs occur when a company wants to cut costs drastically and quickly. Some layoffs focus on a few departments, while many firms cut employees from all over the company. Layoffs instantly reduce expenses, but there is no easy way to calculate the costs of losing employee knowledge and forcing the remaining employees to take on a heavier workload. Productivity can decrease if too much work is forced on the employees who are still there.
Economic recessions occur due to a drop in consumer spending. This leads to businesses finding different ways to reduce their own spending. Since consumers spend less, businesses may increase the number of sales to reduce inventory or delay building new offices and factories. Businesses can survive recessions if they have enough extra cash so that reduced consumer spending doesn't result in more extreme actions like layoffs. Recessions hurt industries that depend on discretionary income or extra income, like the film and advertising industries.
- Yale University: The Mystery of Economic Recessions
- "Corporate Finance"; Scott B. Smart, William L Megginson, Lawrence J. Gitman; 2003
- The U.S. Department of Justice: Giving Internet Explorer Away
- Economic crisis image by Denis Ivatin from Fotolia.com