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Good Question: Are Mergers Ever Good For Consumers?

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(credit: CBS) Jason DeRusha
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By Jason DeRusha, WCCO-TV

MINNEAPOLIS (WCCO) — AT&T wants to buy T-Mobile for $39 billion. Clearly, AT&T thinks the deal is good for its business. But what about consumers? Is having fewer choices ever good for consumers?

If federal regulators allow AT&T to gobble up T-Mobile, it would have 42 percent of all cell phone customers. Only 3 big companies would be around. It made Sen. Amy Klobuchar call for the FCC and Department of Justice to take a “close, hard look” at the merger to make sure consumers don’t end up with higher prices and worse service.

“Gone are the days when rubber barons merge and take over. Today, the competition is just vicious, absolutely vicious,” said George John, a professor at the University of Minnesota’s Carlson School of Management.

According to John, most mergers don’t work out that well for the companies involved, and “most of the time mergers don’t work out that well for the customers.”

So how much competition is enough? Two companies? Three companies? “There are generations of economists who’ve made careers out of whether 2 is enough, or 3 is enough,” said John.

In John’s view, however, even when there are pockets where there isn’t robust competition, overall, it’s hard to point to a company that’s an actual monopoly today.

“We have so much choice in this economy, there are very few industries where you have no choice,” he said.

However, when BusinessWeek Magazine commissioned a study to evaluate consumer reaction to mergers after they’ve happened, customers thought they got better service or prices from only 29 percent of mergers.

When it comes to good mergers for consumers: many experts point to the Disney-Pixar merger from 2006. That’s been called a win for consumers in terms of quality movies: like “WALL-E” and “Toy Story 3.”

The NFL and NBA both merged with competitor leagues – resulting in more a concentrated quality of players.

And there’s little debate that buyouts of financial institutions, when one is near failure, is good for consumers and their bank accounts.

“That, you have to say has been good for consumers,” said Lee Egerstrom, an analyst at MN2020.

He also pointed to the merger of International Multifoods with Smucker’s as a win for consumers, because the two companies had no overlapping product lines.

“Normally when they’re are synergies, that should send goosebumps up the sleeves of every God-fearing Minnesotan. That means a whole bunch of people are going to lose their jobs,” Egerstrom said.

According to AT&T, their coverage will be better after the merger. They showed us a map of spotty Minnesota 4G coverage today, and robust near complete coverage after they add T-Mobile’s cellular spectrum.

Plus, there is still hard core price competition among the remaining three cellular companies (Verizon, Sprint and AT&T).

“That’s why I think this merger isn’t likely to have the negative outcomes. I suspect it won’t have positive outcomes either. It’s probably a wash,” said John.

There’s one category where mergers and buyouts almost always are good for consumers, John explained, and that’s with the start-up, cutting-edge little guys .

“The reality is almost every start-up’s business plan ends with: and sell to Google, sell to Microsoft. You need the big guys with deep pockets and the abillity to blow it out into the marketplace,” he explained.

Without those kinds of buyouts and mergers, many consumer innovations would never have been widely available, he said.

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