Introduction to Monopoly and Antitrust Policy
Horizon Lines to sell off Hawaii operation, merge with Matson
The transaction is expected to close in 2015, subject to regulatory approval, satisfaction of the closing conditions to the merger of Horizon and Matson and other customary closing conditions.
All three companies say the change will greatly expand the opportunities for shipping between the mainland and Hawaii, but an economist KHON2 spoke to has concerns, because it would mean having one less option. Pasha and Matson already service Hawaii.
As an economics professor at the University of Hawaii at Manoa, Sumner La Croix studies the current state of economies in the Asia-Pacific region. He says he’s skeptical of this multi-million dollar merger.
“Matson and Horizon are two big competitors in Hawaii. Clearly the antitrust authorities wouldn’t allow this merger, so Matson essentially had to not buy Horizon’s Hawaii service. Instead, they sold it to Pasha. They’re a third player in Hawaii’s market,” La Croix explained. “As a result of this merger, Hawaii’s market is reduced from three to two players. That’s always a concern with small firms.”
Could this affect prices on goods like food and clothing?
“It’s possible the everyday person would see some increase in goods, but mergers also take place because firms expect to see cost savings, and cost-savings can also push prices down,” La Croix said. “At this point, it is too early to tell.”
That brings us to the central question this chapter poses: What should the balance be between corporate size and a larger number of competitors in a marketplace? We will also consider what role the government should play in this balancing act.
Chapter Objectives
Introduction to Monopoly and Antitrust Policy
In this chapter, you will learn about:
- Corporate Mergers
- Regulating Anticompetitive Behavior
- Regulating Natural Monopolies
- The Great Deregulation Experiment
The previous chapters on the theory of the firm identified three important lessons: First, that competition, by providing consumers with lower prices and a variety of innovative products, is a good thing; second, that large-scale production can dramatically lower average costs; and third, that markets in the real world are rarely perfectly competitive. As a consequence, government policymakers must determine how much to intervene to balance the potential benefits of large-scale production against the potential loss of competition that can occur when businesses grow in size, especially through mergers.
For example, in 2011, AT&T and T-Mobile proposed a merger. At the time, there were only four major mobile phone service providers. The proposal was blocked by both the Justice Department and the FCC.
The two companies argued that the merger would benefit consumers, who would be able to purchase better telecommunications services at a cheaper price because the newly created firm would be able to produce more efficiently by taking advantage of economies