The Proposed Merger of AT&T and T-Mobile: Are There Unexhausted Scale Economies in U.S. Mobile Telephony?

28 Pages Posted: 26 Apr 2012  

Yan Li

ESRC Centre for Competition Policy, Norwich Business School, University of East Anglia

Russell W. Pittman

U.S. Department of Justice - Economic Analysis Group; Kyiv School of Economics; New Economic School (NES)

Date Written: April 25, 2012

Abstract

From the beginning, the debate on the likely results of the proposed acquisition of T-Mobile USA by AT&T focused more on the claims of the parties that “immense” merger efficiencies would overwhelm any apparent losses of competition than on the presence or absence of those losses, and the factors that might affect them, such as market definition. The companies based their “economic model” of the merger on estimates of efficiencies on AT&T’s “engineering model”, without addressing the credibility of the results of the latter in the context of the economics literature on the telecommunications sector. In this paper we first argue that the economics literature on economies of scale (especially) and economies of density in mobile telephony suggests caution in expecting such massive cost reductions from increasing the size of an already very large firm. We then present new econometric evidence from an international data base supporting the notion that most large mobile telephone service providers have reached the point of constant or even (rarely) declining returns to scale.

Keywords: competition, mobile telephony, economies of scale, economies of density, merger efficiencies

JEL Classification: D24, K21, L40, L96

Suggested Citation

Yan Li and Pittman, Russell W., The Proposed Merger of AT&T and T-Mobile: Are There Unexhausted Scale Economies in U.S. Mobile Telephony? (April 25, 2012). Available at SSRN: https://ssrn.com/abstract=2046129 or http://dx.doi.org/10.2139/ssrn.2046129

Yan Li

ESRC Centre for Competition Policy, Norwich Business School, University of East Anglia ( email )

Norwich Research Park
Norwich Research Park
Norwich, NR4 7TJ
United Kingdom
+44(0)1603597391 (Phone)

Russell Pittman (Contact Author)

U.S. Department of Justice - Economic Analysis Group ( email )

450 5th St. NW
Antitrust Division
Washington, DC 20530
United States
202-307-6367 (Phone)
202-307-3372 (Fax)

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

New Economic School (NES) ( email )

47 Nakhimovsky Prospekt
Moscow, 117418
Russia

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