Critical Reasoning

Merger Analyst: Two long-time competitors, manufacturers of personal digital assistants- better known simply as PDAs-have agreed to merge their companies. The main purpose of the merger, put forth by outside analysts, would be to collaborate on the development of a PDA redesign that will allow the new merged company to manufacture PDAs at a lower cost.

Although the post-merger retail price, to be agreed on by the companies, will likely cut into the new company's overall profit margins, it will also eliminate the competition between these companies, two of the world's largest PDA manufacturers.


Given the above, which of the following statements, if true, as made by the president of one of the two companies, best illustrates the probable thinking behind the merger?
A. "By combining forces we will ensure that consumers pay the lowest possible cost for the next generation of Personal Digital Assistants."
B. "We would rather secure relatively lower PDA profits than lose market share to a competitor."
C. "Combining forces will be beneficial to the business climate in this country by setting a model of collaboration and goodwill as opposed to fostering the current competitive environment existing in the PDA industry."
D. "The best way to permanently lower the retail price of PDAs is to eliminate our most formidable competition."
E. "Although long-term PDA retail costs may rise, our next generation of PDAs will decrease in retail cost.

IMO B

r2kins wrote:Merger Analyst: Two long-time competitors, manufacturers of personal digital assistants- better known simply as PDAs-have agreed to merge their companies. The main purpose of the merger, put forth by outside analysts, would be to collaborate on the development of a PDA redesign that will allow the new merged company to manufacture PDAs at a lower cost.

Although the post-merger retail price, to be agreed on by the companies, will likely cut into the new company's overall profit margins, it will also eliminate the competition between these companies, two of the world's largest PDA manufacturers.


Given the above, which of the following statements, if true, as made by the president of one of the two companies, best illustrates the probable thinking behind the merger?
A. "By combining forces we will ensure that consumers pay the lowest possible cost for the next generation of Personal Digital Assistants."
B. "We would rather secure relatively lower PDA profits than lose market share to a competitor."
C. "Combining forces will be beneficial to the business climate in this country by setting a model of collaboration and goodwill as opposed to fostering the current competitive environment existing in the PDA industry."
D. "The best way to permanently lower the retail price of PDAs is to eliminate our most formidable competition."
E. "Although long-term PDA retail costs may rise, our next generation of PDAs will decrease in retail cost.

IMO B

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Please post the OA.

P : Competitors have decided to merge to work together on PDA re-design. PDA's can be manfactured at a lower cost. Profit margin is going to reduce, but it will eliminate competition between two largest manufacturers.

A) This looks logical to me. The main purpose of the merger is to collaborate on the development of PDA to manufacture PDA's at a lower cost. So combining forces will ensure that customers will pay lowest cost for next generation of PDA's.

B) Argument doesn't talk about loosing the market share to competitors.

C) Seems a bit extreme -- beneficial to business climate in the country etc...

D) This is not supported by information in the passage. We don't know if this is the best way to permanently lower the price.

E) Stretch.

I am going with A. Please suggest any solid explanation for B

OA is B.

Still no clear explanation on why B is preferred over A!!

Can any of the experts help??

thx

IMO B

This is like a main point question...lets analyze it that way

The main thought behind the merger is to:
--Eliminate competition between the 2 large companies

The secondary inevitable outcome of the merger will be:
--Technology collaboration, price cut (which is likely to increase sales), decreased profit margins (over a short term)

Now lets analyze the answer choices:

A. "By combining forces we will ensure that consumers pay the lowest possible cost for the next generation of Personal Digital Assistants."
----Thats the secondary reason. The primary reason is to eliminate competition.

B. "We would rather secure relatively lower PDA profits than lose market share to a competitor."
----Thats perfect. The main idea is to capture market share at the inevitable result of (short time) decreased profits.

C. "Combining forces will be beneficial to the business climate in this country by setting a model of collaboration and goodwill as opposed to fostering the current competitive environment existing in the PDA industry."
----There is no talk of the overall good of the business climate or setting a precedent for others. Clearly the companies have merged for their own personal gains rather than as a charitable gesture.

D. "The best way to permanently lower the retail price of PDAs is to eliminate our most formidable competition."
----Close but it lays emphasis on the the secondary reason (i.e. it states that cutting the price is the primary reason and thats why the merger)

E. "Although long-term PDA retail costs may rise, our next generation of PDAs will decrease in retail cost.
----Not the main point.

siddus wrote:This is like a main point question...lets analyze it that way

The main thought behind the merger is to:
--Eliminate competition between the 2 large companies

The secondary inevitable outcome of the merger will be:
--Technology collaboration, price cut (which is likely to increase sales), decreased profit margins (over a short term)

Now lets analyze the answer choices:

A. "By combining forces we will ensure that consumers pay the lowest possible cost for the next generation of Personal Digital Assistants."
----Thats the secondary reason. The primary reason is to eliminate competition.

B. "We would rather secure relatively lower PDA profits than lose market share to a competitor."
----Thats perfect. The main idea is to capture market share at the inevitable result of (short time) decreased profits.
.

Makes some sense but I am still not sure how you deduced that the main thought behind the merger was to eliminate competition?

OA is B..Merger occurs generally in two scenarios when two companies with similar product base merge with each other where the post merged company hoping to gain the market share alone.Or two companies merge with different product base..St-B says one of the companies secures lower profits than lose market share.It should mean,this voice is from the president of the the merged company which was not doing good on the basis of market share.It might loose the overall market control & decided to merged with another company to be in PDA business..

St-A might not work here because Merger does not mean the the product of new company could be cheaper than previously sold stand alone products.

r2kins wrote:Makes some sense but I am still not sure how you deduced that the main thought behind the merger was to eliminate competition?

Sorry, I should have explained that earlier. Lets give it a shot now (I have slightly edited the argument to make it simpler):

Analyst: Two competitors, manufacturers of PDAs, agreed to merge their companies. The main purpose of the merger, put forth by outside analysts, would be PDA redesign that will allow the new merged company to manufacture at a lower cost.

OK, now lets break it down one by one -

The analyst first gives us 2 main premises
1) 2 large competitors agreed to merger their companies
2) The reason for merger, as suggested by outside analysts, is to collaborate and produce PDAs at a lower cost

The underlined words, "as suggested by outside analysts" is the key here. The author is stating the opinion of outside observers (analysts) who claim that the main reason for the merger is to collaborate and lower cost. However, this is not the author's own opinion. So this far we have nothing to gauge the author's own thinking.

Therefore, moving to the second half of the argument, we must be ready for the author's opinion i.e. in the next half, the author will either refute, support, or stay ambivalent to the opinion. We must identify the author's position from the next set of statements.

Although the post-merger price will likely cut into the new company's overall profit margins, it will also eliminate the competition between these companies, two of the world's largest PDA manufacturers.

In this half the author is stating that well yea the post-merger price will probably cut into the company's profit margin (don't know, could also lead to profit increase) BUT it will also eliminate competition between 2 of the world's largest PDA manufacturers.

So the author is trying to somewhat lay emphasis on the idea that the merger will eliminate competition. OR he would have said "The merger will result in cutting edge PDAs that are smaller and cheaper".

This is half the job. Now the question states -

Given the above, which of the following statements, if true, as made by the president of one of the two companies, best illustrates the probable thinking behind the merger?

So we have gauge into the mind of the presidents (and hence the author because we must take the author's statements at face value rather than opinions of 3rd party cited by the author)

Lets go through the options one at a time

A. "By combining forces we will ensure that consumers pay the lowest possible cost for the next generation of Personal Digital Assistants."

Does the author lay emphasis on the fact that the merger was made to lower the costs? He says Although it will cut costs, LIKELY hurting the company's profit margin, it will eliminate competition. In fact the LIKELY suggests that profit margins may remain unaffected or even improved due to increased sales.

C. "Combining forces will be beneficial to the business climate in this country by setting a model of collaboration and goodwill as opposed to fostering the current competitive environment existing in the PDA industry."

I think you can safely eliminate this on the fact that nothing was suggested to affect the overall business climate of the country.

D. "The best way to permanently lower the retail price of PDAs is to eliminate our most formidable competition."

Again, from the author's final statements, do you think that the management's idea was to really cut on the price and offer people a good bargain?

E. "Although long-term PDA retail costs may rise, our next generation of PDAs will decrease in retail cost.

Nothing mentioned about other product prices. Again, this can't be the management driving force to merge. They may well have done it on their own.

Hope this make sense..but I think its a tough question..i took long to crack it and may have got it wrong on test day.