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

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.