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Essay Ronald Coase Principles Of Business And Economics
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This is an essay about the ideas of Ronald Coase. This essay is an assignment for the course Principles of Economics and Business 1.
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The Firm’s Ability to Grow Through AcquisitionsIn the year 2017, Intel confirmed that it is acquiring Mobileye. Mobileye is a leader in
computer vision for autonomous driving technology. According to Lunden (2017), this is the biggest-
ever acquisition of an Israeli tech company. With this acquisition, Intel will not only get a bigger
range of different pieces that go into autonomous driving systems, but it will also bring relationships
with automakers under Intel’s umbrella (Lunden, 2017). With autonomous driving systems becoming
increasingly important, this is a good step for Intel's future. The CEO of Intel, Brian Krzanich, said
the following in a statement: “This acquisition is a great step forward for our shareholders, the
automotive industry and consumers.” Do both company’s think it is a good step towards the future
but is this a good acquisition? Ronald Harry Coase is a British economist who has a multi-faceted
approach to corporate takeovers. Hence the question: “What is Coase's view on Intel’s acquisition of
Mobileye?”
If firms operate separately in an open market, transaction costs will be made. Transaction
costs are the main topic in the article of Coase. According to Coase (1937), transaction costs refer to
all costs involved in entering and operating in a particular market, such as marketing costs or
advertising costs. The lower the transaction costs, the greater the opportunities for the company to
grow is Coase's theory. And the latter is essential for the subject. With the acquisition, Intel will
reduce its transaction costs. The transaction costs that may have to be incurred for the acquisition are
costs to get in touch with various automakers. The acquisition of Mobileye as said before, not only
brought better autonomous driving systems, but also relationships with automakers. In this case, Intel
no longer must incur these costs (Lunden, 2017). Ronald Coase would therefore be very enthusiastic
about this acquisition based on the reduced transaction costs.
In addition to the reduction in transaction costs, there are also other benefits to this
acquisition. According to Coase (1937), the other advantages of acquisition could be a bigger market
share and the new opportunities it brings. Intel previously had few products and services for self-
driving car systems, but now they can move forward and make big steps in the autonomous driving
systems. According to Lunden (2017), Intel is not the only company that has an interest and is
acquiring other company’s in the autonomous driving market. Since Intel is not the only one in the
market, it will become more and more important to be the biggest in the market. An increase in a
company's market share can enable the company to operate on a larger scale and increase its
profitability. It also helps the company develop a cost advantage over its competitors which is in line
with Coase’s transaction costs theory.
However, Coase also describes some disadvantages of an acquisition. Coase describes that it
is important that when one company takes over the other, the visions for the future are the same.
When the visions aren’t the same, the newly formed company cannot grow. In the case of Intel and
Mobileye, Intel had the vision to become bigger in the autonomous driving industry. Mobileye has the
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