BUS536 Assignment 4

The Antitrust Case on the AT&T / T-Mobile Merger

The Antitrust Case on the AT&T / T-Mobile Merger

Case overview

The department of justice filed a case against AT&T Inc. in their bid to stop the firm from merging with T-Mobile a competitor in the wireless industry. The arguments of the DOJ and other co-plaintiffs was that the merger would certainly eliminate competition in the industry and would make AT & T a monopoly. Additionally, it would increase the barriers to entry in the industry if AT & T managed to lay its hands on the T-Mobile’s infrastructure especially its spectrum. Experts on the hand and AT & T officials felt that this merger would open the industry to an even more fierce competition that would definitely guarantee quality and even lower prices for the customers. Due to the magnitude of the case, AT & T decided to withdraw its ambitions. The paper examines the benefits and the demerits of the antitrust laws on which the DOJ based its arguments.  

The Pros and Cons of antitrust laws

These laws that were set up by the government of the United States with a sole purpose of ensuring that consumers’ interests are protected against unscrupulous businesses and companies. Additionally, they are also supposed to ensure that there is fair competition in the market for all firms irrespective of their sizes. Moreover, they are supposed to ensure that the consumers enjoy the benefits that emanate from competition (Hovenkamp, 2015). Despite these good principles that guide the antitrust laws they can be abused and even frustrate genuine efforts as was the case of AT & T.

Hovenkamp (2015) notes that the laws do not broadly describe some anti-competitive behavior such as monopolization. Interpretations of these terms often vary from state to state. For instance, the merger was taken as a stride towards monopolization. Big companies that become politically unpopular can be targeted for violation of antitrust laws. The enforced competitive behavior is also a disadvantage to companies that work their competitive strategies such that they become dominant in the market. There is a possibility that the department of justice foresaw a situation where AT & T on merging with T-Mobile would acquire powers with the wireless carrier industry that would render the competition powerless.  

The antitrust laws

Most economists argued for the case of free market economies where there is no intervention by the government. Mixed economies on the other hand advocate for some participation by the government in the way businesses are operated (Skousen, 2016). The Clayton and Sherman act represent government intervention in the US market. These laws if not abused are very good in curbing market malpractices such as overpricing and concentration of the power in a single firm or some few firms. If these laws are not in place, then oligopolies can take the advantage of merging in order to control the prices of the goods and services thus denying customers the freedom of choices that arise from competition. However, these firms are very important that implementers of such laws have to be very impartial to avoid abuse.

Would the merger be successful?

AT & T was then owning a 25% market share while T-Mobile was only commanding 15% market share. AT & T had the financial strength and the ability to set up new resources similar to those of T-Mobile. On the other hand, T-Mobile had the spectrum a major resource that was underutilized. Merging the two firms would have given the two firms a competitive advantage over the other players in the market such as Verizon and Sprint. Unfortunately, customers using the T-Mobile would have been forced to replace their phones as they would have to shift to AT & T’s 3G broadband (Meisel, Navin & Sullivan, 2013). Therefore, the post-merger would have been a success.

Conclusion

AT & T and T-Mobile merger is just one of those cases that may have been ill-targeted by the antitrust laws. However, there is also a possibility that the department of justice and other firms saw a case of overconcentration of power in one firm that would have caused an imbalance in wireless carrier industry. Nonetheless, the laws are goods in checking the market practices of different firms and hence passing the benefits of genuine competition to customers

References

Hovenkamp, H. (2015). Federal Antitrust Policy, The Law of Competition and Its Practice. West

Academic.

Meisel, J. B., Navin, J., & Sullivan, T. S. (2013). Trends in the United States Mobile Wireless

Industry and the Impact of a Merger of AT&T and T-Mobile on the Trends and Overall

Competitiveness of the Wireless Industry. In Mobile Services Industries, Technologies,

and Applications in the Global Economy (pp. 39-54). IGI Global.

Skousen, M. (2016). The making of modern economics: the lives and ideas of the great thinkers.

Routledge.