Question

rticle 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.
       an increase in the HHI to over 2,500
       decreases in marginal revenue for the merged company
       increases in economic efficiency
       increases in revenue for the merged company

Answer 1

The correct option is - "increases in economic efficiency". For the DoJ and FTC to approve the merger, the companies must prove that the merger results in better consumer and overall economic welfare.

Option 1 is incorrect - An HHI of over 2500 indicates a concentrated industry with less competition. This will cause the DoJ and FTC to not approve the merger

Option 2 and 4 incorrect - These are not factors or reasons for the DoJ and FTC to approve or not approve the merger