Article Summary
In late 2017, informed sources announced that telecommunications companies T-Mobile and Sprint were engaged in active discussions about a potential merger. The 3rd and 4th largest wireless carriers in the United States have had frequent conversations about a stock-for-stock merger, with T-Mobile parent Deutsche Telekom becoming the majority owner of the combined firms and T-Mobile CEO John Legere expected to lead the company. Part of the discussions have been whether the Department of Justice and the Federal Trade Commission would approve the merger, and based on those discussions, whether both companies will choose to proceed with a deal.
Source: David Faber, "T-Mobile and Sprint are in active talks about a merger," cnbc.com, September 19, 2017.
-Refer to the Article Summary.A merger between two competitors such as T-Mobile and Sprint may ultimately be approved by the Department of Justice and the FTC if the two companies can substantiate ________ as a result of the merger.
A)increases in revenue for the merged company
B)an increase in the HHI to over 2,500
C)decreases in marginal revenue for the merged company
D)increases in economic efficiency

Question

Quizplus · Accepted Answer

A merger between competitors can be approved by the Department of Justice and the FTC if it can be shown that the merger will result in an increase in economic efficiency. This means that the merged company would be more productive and have lower costs than the separate companies, which could ultimately benefit consumers. Increases in revenue or an increase in the HHI (Herfindahl-Hirschman Index, a measure of market concentration) may actually lead to antitrust concerns and make the merger more difficult to approve. Decreases in marginal revenue for the merged company would also suggest inefficiencies rather than efficiency gains from the merger. Therefore, the best choice is D.

Article Summary In Late 2017, Informed Sources Announced That Telecommunications Companies T-Mobile