Question

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, innovation and strong market reputation. There are certain areas that will create synergy, efficiency and productivity. 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 different capabilities held by these two different organization create a strong case of integration to bring higher efficiency level of resources, operational capabilities and product diversification in computer manufacturing and sales.

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.