In granting (or prohibiting) proposed acquisitions or
mergers in an industry, government regulators consider a
number of factors, including the acquisition’s effect on
concentration, ease of entry into the market, extent of
ongoing price competition, and potential efficiency gains. In
2011, T-Mobile agreed to merge with AT&T at an acquisition
price or $39 billion. However, facing opposition from the
Department of Justice, the companies later abandoned their
merger plans. In 2011, AT&T’s market share of the U.S.
wireless market was 26.6 percent, with T-Mobile 12.2 percent,
Verizon 31.3 percent, Sprint 11.9 percent, TracFone 5.0
percent, U.S. Cellular 3.1 percent, MetroPCS 2.3 percent,
Cricket 1.6 percent, and numerous small providers making up
the remaining 6 percent.
a. What would be the effect of the merger on the market’s
concentration ratio? On the HHI?
b. Antitrust guidelines call for close scrutiny of mergers in moderately concentrated markets (HHI between 1,500 and 2,500) if the resulting HHI increase is more than 100 points. How would this rule apply to the AT&T merger with T-Mobile? How would it apply to a hypothetical merger between T-Mobile and TracFone?
c. AT&T argued that the merger would extend its
network, providing more reliable and faster cell phone
service (particularly to existing T-Mobile customers who on
average have lower-grade service plans at cheaper rates).
Market observers were worried that after the merger, AT&T
would raise cellular rates to some customer segments. Briefly
evaluate these pros and cons.
Complete this assignment in a Microsoft Word document, APA formatted should be about two pages, double spaced.
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