Example 2 The boards of 2 major telecommunications companies recently agreed to

Question

Example 2 The boards of 2 major telecommunications companies recently agreed to a $16 billion merger that would create the world's largest telecommunications company in the world. Although some agree that the synergy between these companies could be dynamic, others feel consumers could ultimately pay the price for the merger, depending on which company becomes dominant in the various service areas. Answer the following questions: •Why do you think consumer advocates have expressed concern over such merger possibilities? •Other than pricing, what are some pitfalls that consumers might have to deal with when 2 major companies merge? •What are the possible ethical dilemmas that are present in this example?

Explanation / Answer

Mergers which are so big can result in lot of disappointments for consumers. Theconsumer advocates have expressed concerns that this kind of merger will result in decreased competition and ultimately higher prices which is a big cause of concern for the consumers. The consumer advocates have expressed concern over such merge because the consolidation of the two largest telecom companies might be a big trouble forthe consumers as they would be stuck with big bills if they choose a simple phone serviceabd let go a bundled package of services. With the merger of two big companies, there will be less competition on the market ,which could force the smaller operators to pay more for access.

Mergers happen to achieve cost savings, gain market share and become financially stronger. The effect of mergers on consumers can be positive or negative depending on the industry and market competition. Some of the pitfalls that consumers might have to deal with when two companies merge are:

Price – By eliminating at least one competitor from the market ,a merger may allow the remaining companies to implement coordinated price increases. For example, inthis merger of two big telecom companies , the smaller telecom companies are forcedto increase their price to be in the market. A merged entity may also pass on costsavings to consumers through lower prices.

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