Monday, November 15, 2010
Caterpillar agrees to buy Bucyrus
This past week, Caterpillar Inc. agreed to buyout Bucyrus International for $7.6 billion. Caterpillar is the world's largest construction and mining equipment maker and is making a strong push to expand deep into foreign markets that are looking to develop. Since the economic crisis, Caterpillar has made drastic changes to improve profitability by cutting almost 30,000 workers. This aquisitition further widens the gap between Caterpillar and other competitors in the construction equipment making industry. Do you think Caterpillar's underlying goal is to monopolize the industry by continuing to acquire companies and further expand into developing foreign markets??
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6 comments:
Seeing a company gain tremendously from emerging markets could been seen in both a positive and negative light. It is reassuring that these developing countries are connecting with companies like Catepillar in order to push their growth to even faster rates. It can also be positive for companies such as Catepillar, and previously Bucyrus, to gain financially from the growth of these economies. However, if certain industries start becoming monopolized, such as construction, then there could be cases of Dead Weight Lose and exploitation. I think there are enough competitors around the world in the construction and mining industries to keep Catepillar from gaining a monopoly status.
Firms are driven by the profit motive in a capitalist economic system - the goal is profit maximization. Gaining a monopoly over an industry or specific product sales will increase profits. Buying out the competition is a great way to increase profits, since higher prices can be charged and less money can be spent on non-productive expenditure, like advertising. A goal of a capitalist economic system is to monopolize as far as the law will let you.
I don't think Caterpillar can monopolize given government's strict regulations about monopoly and industry consolidation. That being said, with this acquisition, it is definitely clear that Caterpillar wants to become the industry's leader. This is the trend across the board; big players acquire smaller ones to gain market share and reduce rivalry.
I agree with Khoa. Though Caterpillar is a very popular, strong and wide spread company, because of government laws and regulations they wouldn't be able to capitalize the market in America. It they bought up companies in less developed countries with laxed laws and regulations on monopolization Caterpillar's monopoly would become a much more likely reality. Also, as Ben said i don't see this as anything wrong. Firms are driven to be strong and grow to make money and grow their profits. Caterpillar is just behaving as a successful capitalist firm.
Khoa is correct under the Sherman Anti Trust Act, Caterpillar's goal is not trying to monopolize. However, such economic uncertainty has resulted in the shakeout stage of many industries; therefore, Caterpillar's goal may possibly be to obtain shares that had once been claimed by some companies.
I agree with Mesaban, I don't think their goal is to own most of the market and then charge what they want for their equipment. Like most companies with the bad economy if they can get out the weak competition by buying them out when the market comes back they will be stronger then ever. This seems like a good plan for Caterpillar.
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