Efficiency in perfectly competitive free
markets
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Efficiency comes about in perfectly competitive free
markets in three main ways:
They motivate firms to invest resources in
industries with a high consumer demand and move
away from industries where demand is low.
They encourage firms to minimize the resources
they consume to produce a commodity and to use
the most efficient technologies.
They distribute commodities among buyers such
that buyers receive the most satisfying commodities
they can purchase, given what is available to them
and the amount they have to spend.
Insider Trading
Insider information is information
(about company strategy and plans) that
someone within a company has but that
is not available to those outside the
company.
The moral problems connected with
insider information concern the use that
individuals may make of such
information while they are still members
of the firm.
Two aspect of the problem:
1.
One is that of some one within the
firm using information for his or her
private gain, at the expense of the firm.
This is called conflict of interest
 2. The other is the use of insider
information by someone within a firm
advantage over those not in the firm.
 Those who attempt to justify insider
trading in terms of market efficiency
are mistaken. They believe in the
market as an impersonal mechanism
which does not care who gains or
looses in its transaction. Winner and
losers are beside the point, because
the market is simply an efficient
means of matching buyers and
sellers.
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Yet even though the stock
market acts impersonally, it
mediates transactions between
people, and transactions between
people are properly subject to
moral rules.
Thus, those buy and sell do care
who gains and loses. Both
parties desire and deserve a fair
market.
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The second case of illegitimate
use of insider information also
concerns personal gain, not at
the company’s expense but at the
expense of those not connected
with the company. This typically
occurs in trading the stock of the
company for which one works.
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SEBI considers an “insider” any one who has
pertinent information that is not publicly
available, and that gives the trader an
advantage over public. Thus the secretaries,
lawyers, consultants, financial printers, and
others who have access to inside information
become insider because of their knowledge.
Many companies go to extreme lengths to keep
takeovers and similar plans secret. They use
code words for the companies involved. They
guard against tapped phones and electronic
surveillance.
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Efficiency and Fairness
Efficiency is not the only
important factor in market or in
ethical thinking.
Fairness is central to both.
Corporate takeovers
Efficiency and diversification are the two
common rationales for mergers and
acquisition.
Takeovers
Hostile
Friendly
A hostile take over
A friendly takeover
is one that takes
is one where one
place against the
company buys another
wishes of the acquired
with that
company’s
company’s consent
managers.
 The corporate restructuring that we are
observing these days posing many ethical
questions.
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Greenmail: Situation in which a large
block of stock is held by an unfriendly
company. This forces the target
company to repurchase the stock at a
substantial premium to prevent a
takeover. It is also known as a "Bon
Voyage Bonus" or a "Goodbye Kiss".
Not unlike blackmail, this is a dirty
tactic, but it's very effective.
 Golden
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parachute:
A clause in an executive's
employment contract
specifying that he/she will
receive large benefits in the
event that the company is
acquired and the executive's
employment is terminated.
These benefits can take the
form of severance pay, a
bonus, stock options, or a
combination thereof.