Mircroeconomics ( AT&T and T-mobile merger) - Essay Example

On the other hand, this implies a reduction in congestion and therefore a possibility of better signal quality and service for the customer base. AT&T consumer's who have been suffering worsened quality because of the heavy data-demands of the iPhones launched in 2007, may expect better quality service because the integrated network will have a substantially better carrying capacity. Service quality is thus likely to improve for iPhone users as well. Rivals, given such improvements are likely to push forward on the same dimensions and improvements in overall signal quality and service provision could be expected.

The major groups concerned with the merger, apart from the company owners and employees are the customers, the rivals and the providers in the supply chain for these companies and their rivals as well. In the present paper, we examine what are the expected effects of this merger on related groups of consumers, competitors, and last but not the least, the suppliers. The rest of the essay is organized as follows: in the next section we look at the expected impact on consumers, particularly in terms of prices, signal quality and coverage. . ven the small number of competitors present in the market and the observed strategic interdependence between them, we are looking at an oligopoly market.

Collusion between rivals in such a market has substantial impacts on the characteristics of the market. On one hand such collusion leads to a reduction in the number of firms and thus the market deviates away from competition even more. Therefore, this increasing distance of the market from a perfectly competitive market implies a number of welfare reducing aspects. First and foremost, a fewer number of firms implies an increased market power and thus greater control over prices. Prices are likely to increase and so that will lead to a fall in consumers' surplus.

There are reductions in productive and distributive efficiency as well (Varian, 1992). However, there are certain benefits that accrue to enhancement of welfare as well. For instance, the excess capacity that causes productive inefficiency also implies resources that can be utilized for innovations. Particularly, as pointed out by Schumpeter (cited in Solow, 2007), there cannot be privately motivated innovations or R&D activities unless industries earn positive profits. Therefore, for overall economic growth and progress, some degree of market power is crucial.

Additionally, the enhancement of capacities is likely to yield scale benefits and increased efficiency as well. This allows merged firms to reduce prices without reducing profitability. In the present context therefore, the proposed merger has twin effects on the customers. Before the merger, AT&T's network is highly congested and customer's complain regularly about poor signal quality. The merger is likely to solve these problems since T-mobile's network is not nearly as congested and the total number