Midwest Media Inc. is a broadcasting firm that owns and operates radio and television stations in the Midwest. The firm is currently considering the purchase of a proximate fast food chain that is experiencing financial difficulty. One group of Midwest managers strongly supports the proposed acquisition on two grounds. First, they assert that radio and television advertising is crucial to the profitable operation of a fast food chain, and all managers responsible for the ultimate decision agree with this assertion. Second, the group in favor argues that since Midwest Media owns the radio and television stations, it can purchase advertising for the fast food restaurants at cost rather than the regular retail price charged the owners of hamburger joints. Since this crucial input can be purchased for less, the group supporting the acquisition argues that the chain could be operated profitably under Midwest supervision.
Critically evaluate the arguments made by this group.
What recommendations would you make to the management of Midwest Media?