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Homework answers / question archive / Carrier 2011 2019 Oligopoly - End of Chapter Problem In 2011, the Justice Department rejected AT&T's proposal to purchase T-Mobile for $39 billion due to anti-competitive concerns

Carrier 2011 2019 Oligopoly - End of Chapter Problem In 2011, the Justice Department rejected AT&T's proposal to purchase T-Mobile for $39 billion due to anti-competitive concerns

Economics

Carrier 2011 2019 Oligopoly - End of Chapter Problem In 2011, the Justice Department rejected AT&T's proposal to purchase T-Mobile for $39 billion due to anti-competitive concerns. A few years later, Sprint launched its own attempt to purchase T- Mobile. In early 2020, Sprint and T- mobile finalized their merger agreement. Verizon 34% 29% AT&T 32 40 Sprint 17 13 a. Use the accompanying table to calculate the HHI before and after the proposed 2011 merger of AT&T and T-Mobile. T-Mobile 10 16 HHI pre-merger: 2618 HHI post-merger: 3298 Incorrect Incorrect b. Use the table to calculate the HHI of the industry in 2019 and then estimate the HHI for the post Sprint and T-mobile merger. HHI pre-merger: 2870 HHI post-merger: 3286 Incorrect Incorrect

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Question

(a)

In 2011

Calculate HHI pre merger -

HHI = [Market share of Verizon]2 + [Market share of AT&T]2 + [Market share of Sprint]2 + [Market share of T-Mobile]2

HHI = [34]2 + [32]2 + [17]2 + [10]2

HHI = 1,156 + 1,024 + 289 + 100

HHI = 2569

The HHI pre merger is 2569.

Now, AT&T and T-Mobile are contemplating to merge. If these two firms merge then their combined market share would be 42%.

Calculate HHI post-merger -

HHI = [Market share of Verizon]2 + [Market share of AT&T and T-mobine after merger]2 + [Market share of Sprint]2

HHI = [34]2 + [42]2 + [17]2

HHI = 1,156 + 1,764 + 289

HHI = 3209

The HHI post merger is 3209.

(b)

In 2019

Calculate HHI pre merger -

HHI = [Market share of Verizon]2 + [Market share of AT&T]2 + [Market share of Sprint]2 + [Market share of T-Mobile]2

HHI = [29]2 + [40]2 + [13]2 + [16]2

HHI = 841 + 1,600 + 169 + 256

HHI = 2866

The HHI pre merger is 2866.

Now, Sprint and T-Mobile are contemplating to merge. If these two firms merge then their combined market share would be 29%.

Calculate HHI post-merger -

HHI = [Market share of Verizon]2 + [Market share of AT&T]2 + [Market share of Sprint and T-Mobile after merger]2

HHI = [29]2 + [40]2 + [29]2

HHI = 841 + 1,600 + 841

HHI = 3282

The HHI post merger is 3282.

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