Introduction
Understanding what constitutes a market and what features characterize a market structure is the first step in any market analysis. A market’s qualities that influence the actions and outcomes of the businesses operating within are referred to as a market structure. This essay examines industry concentration and provides recommendations about whether Time Warner Cable should merge with Dish Network. It will discuss a comprehensive overview of the economic structure, choose the concentration ratio to apply, and decide whether the industry is highly concentrated by performing calculations, identifying significant differences between 2015 and the recent year for the cable industry, and determining whether Time Warner Cable and Dish Network should merge.
Industry Concentration
Generally, the larger the merger-induced shift in industry concentration, the higher the likelihood that a horizontal merger may have collusive, anti-competitive repercussions.
Since a collusive merger raises the quality-adjusted product price in the industry, it also comes from the idea that the projected advantages of the union to the merging businesses’ rivals in the product market should grow as the concentration changes (Competitive effects, n.d.). The U.S. Department of Justice’s regulations of mergers state that industry is unconcentrated if the HHI is less than 1,000 and “concentrated” if it reaches 1,800 (Competitive effects, n.d.). Since by now, the merge concentration reaches 3369, then it can be considered highly concentrated. In 2015 the concentration was 3425, which is somewhat higher than in the current year (Baye & Prince, 2022). Due to the increased number of companies, Dish Network, in particular, the industry now has more competitors. However, a strategic partnership with Dish Network would create a significant change in concentration in the Metro area. Although Dish Network takes a relatively small part in the market compared to Time Warner Cable, the partnerships would impact the business sphere significantly. In that case, the concentration would be 4140, which is relatively higher than the pre-merger rate (Baye & Prince, 2022). It happened due to the fact that two emerged companies created strong competition.
Antitrust Laws
However, the antitrust laws’ fundamental goal has remained the same for more than a century: to safeguard the competitive process for the interests of customers by ensuring that there are substantial incentives for companies to operate profitably, keep costs low, and maintain high standards of quality (Shapiro, 2019). Some mergers alter the way the market functions, which may result in increased costs, lower-quality products, and services, or little development. The union between Time Warner Cable and Time Warner Cable can be described as a horizontal merger that offers the most antitrust danger.
When the result may be considered to diminish rivalry or possibly to form a monopoly, mergers and acquisitions are prohibited. The agency’s main inquiry is whether the combination is likely to produce, strengthen, or enable the exercise of market power. Considering all the conditions, the cooperation between the two companies would not be beneficial for the other competitors and could damage the market.
Conclusion
A merger can potentially give rise to a chance for a one-sided anti-competitive effect. When merging companies are the only rivals in a market, this form of damage is most visible in the event of a monopoly merger. However, in sectors where the merging companies provide goods that consumers regard to be exceptionally close replacements, a union may also permit an unanticipated price hike. The merged firm is likely to increase prices profitably after the merger without losing numerous sales. If enough consumers choose to move between the merged company’s products rather than switching to those of other companies, and if those other companies cannot change their products’ position to lure customers away, then such a price rise will be beneficial to the combined company from. However, it would be troubling for the market in general, and the union would only cause complications.
References
Baye, M., & Prince, J. (2022). Managerial Economics & Business Strategy (10th ed.). McGraw Hill.
Competitive effects. Federal Trade Comission. (n.d.). Web.
Shapiro, C. (2019). Protecting competition in the American economy: Merger control, tech titans, labor markets. Journal of Economic Perspectives, 33(3), 69-93. Web.