Government Regulators

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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