Both powerful and thriving producers, this team will be one that will rival other producers of the same goods. Working together on this development will give the advantage of two “minds” put together, and so provide a large lead. Rational thinking consumers and investors will invest their money into the venture, and are very likely to gain from this. The stock market has already shown an increase in the stocks of both companies, providing evidence that the union is already taking effect.
With improved technology, the demand for automobiles produced by these two companies will increase, and the demand curve will shift to the right (graph 1). This shift will allow GM and Ford to charge a higher price for their products while still experiencing equilibrium between the supply and demand curves. The other companies, that have not merged, and are not working on this new six-speed automatic transmission, will experience a decrease in demand. Their demand curve will shift to the left (graph 2). This will cause the price for such products to decrease, and in the long run, these companies will lose out to Ford and GM.
Both originating from the U.S., there is a possibility that the merger for this project could cause competing countries to introduce barriers of trade to protect their own automobile industry. Quotas on imported U.S. cars or tariffs on such goods could be established. By placing a quota on imported U.S. automobiles, there will be a limit on the amount of cars imported from the U.S. The imports alone will not be able to meet the demands of the countries consumers’ and so domestic production would resume the supply curve (graph3). This would also increase the price of the country’s own domestic products while still maintaining equilibrium.
If a tariff were to be imposed on imported automobiles from the U.S. then such cars would be increased in price for consumers in that country and so would be demanded less (graph 4). The imports wouldn’t fulfill the demands of the country, and so domestic production would satisfy the consumers’ wants.
This union will be a prosperous one for G.M. and Ford, although it may cause increased competition and protection in foreign automobile markets.
Article: “ Ford, GM Team Up on New Transmission”, Yahoo! News Website, , October 10th 2002.
Word Count:
