How do firms interact with each other?

Workplaces face many of the same choices individuals do in terms of how to interact with each other in the economy, particularly in relation to other workplaces involved in a similar sector to their own. They could compete on the open market, collaborate on similar projects, or merge into one, depending on the objectives of the owners.

There’s a whole host of strategic decisions that an organisation can make to raise their chances of achieving their purpose. In a globalized world, an organisation with enough capital - which just means wealth in the form of money, or a valuable property that could be invested into a new project or idea -  can be extremely strategic about its supply chain. Everything from skills in the workforce, technological advantages, available materials, and tax regulations factor into the decision of where to set up camp.  We’ve become so used to this nowadays that we barely realize anymore just how many countries the products we use in our day-to-day could have travelled through to reach us.

We’re all affected by these decisions in a whole host of ways. The jobs available to us and the price of goods and services depend on the companies that have chosen to place themselves in our area. Because businesses can create jobs, governments will sometimes compete to make the best possible ‘business environment’ to incentivize companies to come to their region. But when that means setting very low tax regulations, that might pay off badly for locals who will end up on the receiving end of low-quality public services as a result.

To grow more quickly firms engage in mergers and acquisitions. The difference is just that a merger is by mutual agreement, while an acquisition can happen without the direct consent of a firm, if the purchaser buys their equity or shares on the stock exchange.

When a few firms control a large part of the market or supply chain, it’s called an oligopoly. When a single firm is in control, it’s a monopoly. In both cases, things could either become much more efficient and streamlined, or the larger firms can collude, or conspire with each other, to prevent competition, creating worse quality products at higher prices for consumers. Where there are already barriers to entry, smaller firms find it impossible to compete unless governments intervene to break-up the oligopoly or monopoly.