Description:

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-8- wireless market was 26.6 percent, with T-Mobile 12.2 percent,
Verizon 31 -3 percent, Spring 11.9 percent, TracFone 5-0 percent, US. Cellular 3-1
percent, MetroPCS 2-3 percent, Cricket 1-6 percent, and numerous small providers
making up the remaining 4 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
to 200 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-