Government_Intervention

Government intervention is when the government interferes in business activity. Government interference might benefit consumers as it can allow more competition amongst businesses. More competition could mean that businesses would have to secure there place in the marker by attracting more consumers. They may do this by dropping prices in order to out do their competitors and gain more sales than them. By dropping their prices consumers would gain the same product for less money, hence demand would be likely to increase generating more sales for the consumer. In the electricity businesses case, it would gain more consumers and customer loyalty for its low prices. Gaining more sales means it would be building up a large customer base as long as customers stayed loyal; this would build up a better brand image and would in turn give a better corporate image. Although the brand image and corporate image may be tainted, as people would know that the government intervened in order for the business to act in this way. It would depend on how much the business intervened and the history behind the business and how it was acting before the government changed it s ways. Was it selling at unfair prices' it would also depend on how much they dropped their prices, if it wasn’t as much as other competitors it still may have a lack of demand for their brand and hence not be able to build up a large customer base to be as competitive as their competitors. I think that as an electricity company they would have to be very competitive in order to stay in the market. It may be very beneficial for consumers as electricity is a necessity, and it would be unfair to make them pay large sums of money because they know that people need it. Since government intervention, prices have decreased and may now be at a satisfactory rate at which every body can afford to pay. This would benefit consumers as they would have more money to spend on other necessitates which is important as the economy has recently started going into recession which means that they may not have any excess money for luxury items for a while. Low electricity costs should mean they would have less money to pay for electricity and more to invest in the local communities, which could also give the business a good corporate image because they could have been seen as being ethically minded and could develop a larger consumer base from this. It would depend on how much the price dropped again, on how it affected consumers although the electricity company may lose out money on reducing its prices. In a recession people may choose to use their electricity less in order to cut down on bills, hence the electricity company would have less sales revenue as prices would be going down as well as usage. Government intervention causing the businesses to reduce prices may come as a disadvantage to businesses as they might be going through financial difficulties such as rising raw material costs as oil and gas can get expensive. ThRough rising costs and fewer sales due to the recession and more customers going to larger competitors for even lower prices may cause the business to lose a lot of money and hence not be able to cope with more competition and lower prices. It may then choose to get a loan in order to finance it marketing costs as electricity companies usually have big advertising campaigns in order to get more consumers. This would increase the gearing of the business, which would mean that the ratio of loans to own capital would rise and if this got over 50% this would usually be dangerous for a business. Having high gearing could also affect the cash flow. This would not be good for an electricity company as raw material costs could change each month and it could be likely they could not pay it off all at once. Although it would depend on how the business was financially it was in a good position it would be likely that the low prices wouldn’t affect them much except for lower profits, but if it was in a bad financial position it could cause trouble. It overall depends on how much the government are decreasing the prices by. If its a lot then it may have a drastic effect ion the companies profits and hence it may also cause the share price of the company to fall as there may not be enough money to pay out in dividends, causing shareholders who only want to make a profit to sell their shares when hey see that they aren’t going to be making money on them for a long time. This may cause the businesses corporate image to weaken as they could be seen as not being shareholder friendly and not looking after them properly It may also depend on how well established the business is. If it is a new business, only starting out this may be a disadvantage to them as they would not be able to compete as ell as some of the competitors could. It may not be able to drop its prices as it hasn’t found the right connections in order to get cheap supplies of oil, gas, etc or it may not be able to buy as much in bulk as it has little capital and a weak customer base as it is only starting up, this might cause it to fall behind competitors. Although this maybe good for customers as they would get a higher quality service for less money