Thursday, September 15, 2011

There goes the competition

The first thought that popped into my head when I heard about AT & T making a bid for T-Mobile a while back was “Uh oh, there goes the competition”. In recent days, however, it seems that the pending merger has since been blocked by the Department of Justice due to antitrust concerns. They claim that the merger would create a duopoly market, which would result in consumers facing “higher prices, less product variety and innovation, and poor quality services due to reduced incentives to invest”.

Many governments and consumers flinch at the words “monopoly” and “duopoly”, and understandably so. Monopolies and duopolies have been given a rather bad name in economic textbooks all over for being static, inefficient and basically lazy. Once in a monopoly position, organizations tend to slack off and be less innovative. In order to raise or maintain profits, they pump up prices rather than invent new methods to reduce costs – simply because it is the easier way out. Consumers have little choice but to accept anything that the organization throws at them, especially if the service it is providing is essential. Hence, the Department of Justice’s fears of slipshod service and higher prices following AT&T and T-Mobile’s merger are not unfounded. Still, can nothing good come out of it?

Contrary to popular belief, AT&T and T-Mobile’s merger may actually benefit consumers and increase competition rather than stifle it. By merging with T-Mobile, AT&T will acquire a lot of equipment and resources that are vital in helping them widen their network coverage and improve signal strengths. Since regulatory bodies often block moves by these types of carriers to expand their network bases, such a merger will help them move forward with improving service for their customers.

The merger also seems likely to spur innovation and create competition rather than suffocate it. AT&T aims to use this opportunity to drive the implementation of a nationwide 4G network that would be a strong competitor to landline broadband services.

Or so they say? Can’t blame the Department of Justice for being doubtful! As AT&T gears up to fight back against the lawsuit, it will certainly be interesting to see how things pan out. 

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