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The makers of Fiat cars merged with the makers of Vauxhall cars in 2021 - Edexcel - A-Level Economics A - Question 5 - 2022 - Paper 1
Question 5
The makers of Fiat cars merged with the makers of Vauxhall cars in 2021. Fiat management had aggressively sought a merger to achieve economies of scale. The competit... show full transcript
Worked Solution & Example Answer:The makers of Fiat cars merged with the makers of Vauxhall cars in 2021 - Edexcel - A-Level Economics A - Question 5 - 2022 - Paper 1
Step 1
Which one of the following best describes the merger of the makers of Fiat cars and Vauxhall cars?
Answer
The correct answer is C: Horizontal integration. This is because both Fiat and Vauxhall manufacture cars and their merger leads to an increase in market share and efficiencies associated with combining similar operations.
Step 2
Explain one type of internal economies of scale that the newly merged car company may achieve.
Answer
One type of internal economies of scale the newly merged car company may achieve is lower average costs due to bulk purchasing. By combining their purchasing power for raw materials, the company can negotiate better rates with suppliers, leading to cost savings that can be passed on to consumers.
Step 3
Explain one likely concern the EU competition authorities may have had about the merger.
Answer
One likely concern for the EU competition authorities may have been the increased monopoly power of the merged companies. The merger could reduce competition in the car manufacturing market, potentially leading to higher prices for consumers and less consumer choice, as dominant firms may exploit their market position.