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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 comp... 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 merger of the makers of Fiat cars and Vauxhall cars can be best described as C: Horizontal integration. This is because both companies are in the same industry and are merging with others who produce similar products, allowing for increased market share and reduced competition.
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 that the newly merged car company may achieve is purchasing economies. By combining their operations, the company can benefit from bulk buying of materials, which lowers the cost per unit. This can result in significant savings on raw materials such as steel and components, thus reducing overall production costs and potentially increasing profit margins.
Step 3
Explain one likely concern the EU competition authorities may have had about the merger.
Answer
One likely concern the EU competition authorities may have had about the merger is the reduction in competition. The merger could lead to a larger market share for the combined company, reducing the number of competitors in the market. This can potentially lead to higher prices for consumers, decreased choice, and a decline in market innovation, which would be contrary to the interests of fair competition in the automotive industry.