Chapter 13: Problem 32

Each of the following was a plausible reason for the Justice Department to block a proposed merger between AT\&T and T-Mobile in 2011 except a) It would have left millions of customers without wireless service. b) It would have created a duopoly with Verizon, controlling three-quarters of the wireless market. c) It would have resulted in higher prices and fewer consumer choices. d) It might have resulted in poorer service.

Short Answer

Expert verified

The least plausible reason for the Justice Department to block the merger between AT&T and T-Mobile in 2011 is Reason A, as it is unlikely that a merger would intentionally leave millions of customers without wireless service. Reasons B, C, and D involve negative consequences of reduced market competition, which is a more likely concern for the Justice Department.

Step by step solution

Evaluating Reason A#

Reason A suggests that the merger would have left millions of customers without wireless service. We should consider if this is a plausible consequence of the merger. In general, mergers aim to increase efficiency, enhance business operations, and expand market share. It is unlikely that a merger would intentionally result in leaving millions of customers without service, as this would directly harm the company's market share and profitability. This reason does not seem plausible.

Evaluating Reason B#

Reason B proposes that the merger would have created a duopoly with Verizon, controlling three-quarters of the wireless market. This is a more plausible reason, as the Justice Department typically blocks mergers that would significantly reduce market competition. A duopoly would mean a market predominately controlled by just two companies. In this case, the newly merged AT&T and T-Mobile, along with Verizon, would control a significant portion of the market, possibly leading to reduced market competition and negative implications for consumers.

Evaluating Reason C#

Reason C states that the merger would have led to higher prices and fewer consumer choices. This is a direct consequence of reduced market competition. Reduced competition might allow the remaining companies to wield more pricing power, potentially leading to higher prices for consumers. Furthermore, with fewer competitors, companies may have less incentive to differentiate their products and services, resulting in fewer consumer choices.

Evaluating Reason D#

Reason D claims that the merger might have resulted in poorer service. While it is not guaranteed, this could be a potential consequence of reduced market competition. With fewer competitors, companies may have less incentive to improve the quality of their service. In addition, consolidating the resources and infrastructure of the two companies could potentially lead to challenges in maintaining the same level of service quality during the merger process.

Conclusion#

After evaluating each reason, Reason A (leaving millions of customers without wireless service) seems to be the least plausible reason for the Justice Department to block the merger between AT&T and T-Mobile in 2011. The other reasons (B, C, and D) involve the negative consequences of reduced market competition, which is a more likely concern for the Justice Department.

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