In 2019, wireless firms T-Mobile and Sprint proposed merging. They were the third and fourth largest wireless firms in the United States, behind AT&T and Verizon. The companies argued that without a merger, they wouldn’t be able to successfully compete because of the high costs of building new 5G networks: “5G services will require heavy investment in cellular spectrum and installing hundreds of thousands of antennas around the country.” An industry analyst agreed with the companies, arguing, “You can’t win a race by having half the horses.”
a. Assuming that the analysis of T-Mobile and Sprint executives is correct, draw a graph representing the long-run average cost curve for (i) AT&T or Verizon and (ii) T-Mobile or Sprint, assuming that the two firms don’t merge. If the firms do merge, briefly explain what the result will be for the newly merged firm’s long-run average cost curve.
b. Assuming again that the analysis of T-Mobile and Sprint executives is correct, if the federal government decides to stop their merger, what is likely to happen to the firms once the infrastructure for 5G wireless technology has been completed? Briefly explain.