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At the beginning of the chapter you read about Microsoft's decision to acquire Intuit. Microsoft has made decisions to purchase other companies besides Intuit. A decision by Microsoft to purchase Nokia cell costs Microsoft $7.6 billion dollars.

Do you think Microsoft's decisions to purchase firms make sound economic sense?

Microsoft Corporation is the world's largest technology manufacturer with global name recognition and a strong reputation for innovative products. It has diversified into many new industries through different entries to attain its competitive position and gain high revenue. Microsoft is one of the companies that continuously adapt unrelated or conglomerate diversification and have greatly benefited from such diversification strategy. Conglomerate diversification occurs when a firm that produces specific products mergers with a farm that produces dissimilar or unrelated products (Baye & Prince, 2013).

Microsoft's decision to purchase firms like Nokia and Intuit makes economic sense. Although initially, it may be difficult to understand the reasons for the purchase of unrelated companies or entry into unrelated industries. Microsoft has continuously maintained its market position due to these purchases. The purchase of these firms enables Microsoft to increase its market share relative to its competitors like Apple, therefore, gaining a strong position in the market. The conglomerate diversification also enables Microsoft to increase its margins.

Besides, the purchase of such firms enables Microsoft to scatter its business risk, therefore, less dependence on a single business. This is advantageous as it stabilizes the profitability of a company as challenging times in one industry can be offset by good times in another industry. Although Microsoft spends much on these purchases, the profits and the advantages generated are significantly great due to the ability to reach and extensively satisfy the global markets.