Vertical integration will help Microsoft follow its bottom line. Before the deal, Microsoft would get less than $10 in software licensing fees for every Windows powered phone that Nokia sells. But after the deal, Microsoft also had possibility to get profits on hardware too. This will help Microsoft make more than $40 per phone (Manjoo, 2013). This also helped Microsoft to increase the profitability as there is no need for the company to manufacture the Windows Phones and thus the company can gain in the aspect of economies of scale.
The acquisition of Nokia’s business services by Microsoft led to a reduction in prices of Lumia handsets in several markets. Microsoft strategically reduced its prices in the markets like India. This is because in India, the smartphone users constitutes only 10% of the mobile phone users due to their price, and it can be grown furthermore if low-end devices are available. The cost-reduction strategy helped Microsoft to increase its market share. It also forced their competitors like Blackberry to react against the prices and rethink their pricing strategies. Thus, this merging restricted the new entrants in the market by utilizing its opportunity efficiently to grow over their local as well as global rivals (Singh and Mankotia, 2013).