AT & T: Time Warner Merger

AT&T – Time Warner Merger

AT&T Inc. secured a $85.4 billion blockbuster deal to buy Time Warner Inc. and promised to reshape the media landscape. If this deal were to be approved, AT&T would combine its “millions of wireless and pay-television subscribers with Time Warner’s stable of TV networks and programming” (Gryta). This potential merger has drawn many comparisons to Comcast’s acquisition of NBCUniversal in 2011. Despite the acquisition of NBCUniversal successfully going through, “U.S. regulatory officials and rivals have expressed concerns that some government conditions regarding Comcast’s behavior, such as its requirement to not weigh in on strategic decisions at streaming service Hulu, were tough to monitor and enforce” (Gryta). Many

Firms in a competitive market are price takers, meaning that that are unable to control the market price of their products. Furthermore, in a competitive market, firms are generally unable to greatly impact the market due to their relatively low market share. The problem with the AT&T, Time Warner merger is that it could disrupt the balance in the television and wireless market. Currently, there are many consumers who are willing to buy the products or service of various wireless providers. The most popular being AT&T and Verizon Wireless. As previously mentioned, due to competition in the market, if one producer were to surge its prices highly above the market equilibrium price, “the price that balances quantity supplied and quantity demanded, it would most likely go out of business because there are other firms offering the same product or service at more competitive and lower prices. AT&T could potentially consolidate more market power into one company by merging with Time Warner because by acquiring the “successfully content assembled under the Time Warner umbrella: HBO, Warner Brothers film studios, CNN, TBS, and TNT” (Mankiw), AT&T could force customers signed to rival telecoms companies to either switch to their wireless service and enjoy the benefits, or pay

The price elasticity of demand is “a measure of how much the quantity demanded of a good responds to a change in the price of that good” (Mankiw) and can be computed as “the percent change in quantity demanded divided by the percentage change in price” (Mankiw). The current price elasticity of demand is quite elastic, meaning that a small change in price results in a large change in demand. This is because “goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others” (Mankiw). For example, if AT&T were to suddenly increase their wireless and cellular service prices, many of its existing customers would switch to Verizon wireless without thinking twice because the same service is offered at a lower cost. However, if AT&T were to offer Time Warner networks and television shows as a benefit of becoming a customer, the demand curve would become significantly more inelastic. An inelastic demand curve demonstrates that a big change in price will not result in a big change in quantity demanded because consumers find it hard to find close substitutes. As previously mentioned, Time Warner owns a variety of extremely popular television networks, such as CNN, TNT, HBO, and those who watch the channels daily are bound to switch to AT&T if the company were to propose a plan that offered Time Warner networks on