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Do 4-to-3 Wireless Mergers Actually Enhance Consumer Welfare? - Study

PORTLAND, Ore., Sept. 17, 2019 /PRNewswire/ -- The characterization of the tie-up between T-Mobile and Sprint as a 4-to-3 merger has raised concerns regarding the effects of such mergers on competition and consumer welfare. Seeking to understand and evaluate the basis for these concerns, the International Center for Law and Economics (ICLE) undertook a comprehensive review of the economic effects of such mergers and other factors affecting market concentration in the wireless telecommunications industry. Reviewing 18 empirical analyses published in the last five years, the review found:

  1. Of those studies that considered the effect on investment in 4-to-3 mergers, all found that investment increased post-merger. This suggests that such mergers have consumer benefits, due to the improvements in quality of service -- including availability and speed -- that result from such investments. 
  2. Levels of investment were highest in markets with three firms (although levels of investment in markets with four firms were not significantly lower).
  3. While the effects of market concentration on prices were "conclusively inconclusive," when mergers result in more symmetrical competition (i.e. the resultant firms are of more equal size), individual firms have stronger incentives to invest in the infrastructure, thus enhancing competition and benefitting the consumer through quality improvements and lower prices.
  4. There is no universal rule regarding the "optimal" number of mobile operators. But for a geographically large market like the U.S., with relatively low population density, it might well be three (and there is no good reason to believe that it is four).

When evaluating the merits of a merger, authorities are charged with identifying the effects on the welfare of consumers. On the basis of the studies that we reviewed, "4-to-3 mergers" appear to generate net benefits to consumer welfare in the form of increased investment, while the effects on price are inconclusive.

For more information on this review, or to speak to one of our scholars directly, please email icle@laweconcenter.org.

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A Review of the Empirical Evidence on the Effects of Market Concentration and Mergers in the Wireless Telecommunications Industr

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