Mergers of large firms within Oligopolies - Essay Example

Macro & Microeconomics Mergers of Large Firms within Oligopolies AT&T Inc and T-Mobile AT&T Inc is a multinationalTelecommunications company based in America. This corporation is the second biggest mobile telephone and fixed telephone service provider in the United States. This company also provides broadband subscription television services. AT&T was recently in 2010 ranked as the 7th most prominent company in the United States by total revenue criteria and was also ranked the forth non-oil producing company in United States.

This company is the 3rd most prominent company in Texas and the most gravid non-oil company in Texas. The company’s total revenue for the year ended 2011 was US$126.723 billion. T- Mobile International AG is a company that is involved in Telecommunication. A German company, Deutsche Telekom AG owns more than 50 percent of the company. It operates in GSM, LTE and UMTS-based cellular networks in Europe, United States, the US Virgin islands and Puerto Rico. Globally T-Mobile has an estimate of 150 million subscribers which makes the twelfth greatest mobile service provider.

T-Mobile USA is an American Mobile network and service provider within United States. This American branch has 33.73 million subscribers and has annual proceeds of US$21.35 billion dollars. This makes it to be the fourth biggest wireless company in the United States. The main competitors in the telecommunication industry are the Vodafone of UK and Telefonica of Spain which are international companies that offer the same services as T-Mobile. These firms have dominated the market as they advertise their services i.e. the tariffs and are able to lower costs as they enjoy economies of scale over the T-Mobile in US.

These companies have also invested allot in modern and developed technology thus able to offer more advanced and better services. According to the 4 firm market concentration, the market shares for the largest companies include Verizon with 102 subscribers with a revenue of US$ 110.875 billion, Sprint Nextel with 50 million subscribers and revenue of $32.563 billion dollars and AT&T with 95 million subscribers and The T-Mobile with 34 million subscribers. The concentration ration will be given by CRm = s1 + s2 +.. + sm.

where si is the marketplace divide and m defines the ith corporation (Stiglitz, 2006, pp. 109) According to AT&T Chief Randall Stephenson, AT&T requires T-Mobile’s property and chattels to be able to build its 4G LTE network while on the other hand T-Mobile requires AT&T to provide the 4G service. This 4g service is a fast internet service that helps the customers or users access the net fast. This means that the merger between the two companies will have increased their competitive advantage as the 4G service provision installation requires a high initial capital which many companies may lack.

This gives AT&T and T-Mobile an upper hand. There is need for competition in this sector for competitors makes one company improve on its products and also provides the consumers with a wide variety of products to choose from. A market controlled by only one firm or a monopoly will not favor the consumers as the company or the cartel will not improve on its effectiveness or efficiency and may set up prices as they wish. This will be harmful to the consumers. Market concentration should not be desired in this market as it will definitely harm the consumers.

According to dynamic efficiency, this will improve efficiency over time and there is high cost adaptation to economic condition changes (Stiglitz, 2006, pp. 24) Oligopoly firms cannot take advantage of both the customers and trade by counterfeiting ordinary principles in industries that experience quick technological alteration. There has to be standards for the businesses and consumer standards. Businesses do need different standards from the consumers. The standards may be too high for the consumers or they may favor the consumers more than the businesses.

Thus the businesses will not attain its desired effectiveness or efficiency and the consumer may not attain the desired satisfaction. Reference Stiglitz E. Joseph and Walsh E. Carl. 2006. Economics .WW Norton, London. "AT&T to Buy T-Mobile USA for $39 billion". New York Times . March 20, 2011.