Question

Subject: Managerial Economics

2. Explain why it would be beneficial for Apple and Dell to merge into a single firm that will manufacture computers. Identify the type of integration. Discuss the circumstances under which the Federal Trade Commission will oppose this merger.

Answer 1

Apple and Dell are known for the quality, development and solid market notoriety. There are sure territories that will make cooperative energy, proficiency and efficiency. Here, Apple is renowned for computer designs and quality, whereas the Dell has the robust online network and logistics support. Further, Apple has computers that is majorly supported by MAC operating system, whereas Dell has computers that is based on Windows operating system. Besides, the Dell Company has stronghold in offering on-site warranties. These distinctive abilities held by these two diverse association make a solid instance of reconciliation to bring higher effectiveness level of assets, operational capacities and item broadening in PC assembling and deals.

It will be the horizontal integration as Dell and Apple operate in the same business domain. Both the companies has already a strong presence in computer manufacturing and development technologies.

Though the FTC can oppose the merger on the basis of following grounds:

1. The merger creates increased level of market concentration and gives strong market power to the integrated enterprise. It will create a sort of monopoly and fair competition will be lost. It will cause the FTC to oppose the merger.

2. The Herfindahl Index of the market grows to be more than 2500 points. Then the market is highly concentrated. In this case also, the FTC will oppose the merger.

3. Any merger that increase the Herfindahl index by 200 points, considered to harmful to the fair competition in the market. In this case also, FTC will reject the merger.