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The Conversation - February 11, 2020

A federal judge gave his blessing to the US$26.5 billion merger between T-Mobile and Sprint on Feb. 11, several months after the deal got final antitrust approval from the U.S. government.

A group of attorneys general from 13 states and the District of Columbia had sued to try to block the merger, arguing it would reduce competition in the telecommunications industry and raise customer prices by billions of dollars.

Let me add a third reason the judge should have blocked the deal: It will likely increase economic inequality.

Research on inequality, including my own, has generally focused on how economic growth, tax policy and the use of technology affects it. Less attention has been paid to another important factor: enforcement of antitrust laws.

With the gap between rich and poorsoaring to new historic highs, tackling the problem has become increasingly necessary.

My research on inequality and antitrust suggests the U.S. could begin to rein in its yawning wealth gap by again vigorously cracking down on anti-competitive behavior in the marketplace – just as it did during the mid-20th century.

... Impact on inequality

This exacerbates inequality in three ways.

First, when a company has market power in an industry, it can set prices on its own terms, higher than it would otherwise be able to in a more competitive environment. This transfers wealth from customers who pay the higher prices to the dominant company. Because the managers and the owners of these powerful businesses tend to be wealthier than their consumers, this wealth transfer is regressive and therefore promotes economic inequality.

A second kind of anti-competitive behavior arises in the context of mergers and acquisitions, such as the T-Mobile-Sprint deal. The telecoms sector was already very concentrated, and now it’s expected to get even worse.

Or take the health care industry. After the Affordable Care Act became law, there was a wave of hospital mergers. These mergers led to price increases of over 20% for consumers.

So, once again, we have regressive wealth transfers from poorer consumers to wealthier hospital owners and managers.

Finally, anti-competitive behavior frequently arises when there is common ownership of corporations. The airline industry provides a great illustration of this.

From 2013 to 2015, the same seven shareholders controlled 60% of United Airlines, 27.5% of Delta, 27.3% of JetBlue and 23.3% of Southwest. Harvard law professor Einer Elhaug argues this kind of common ownership of multiple companies in an industry is very likely to lead to anti-competitive prices.

And that’s exactly what researchers have found. A 2018 paper showed that ticket prices are 3% to 11% higher due to common ownership, and studies of the banking and other industries have found similar effects. ...
Read full report at The Conversation