IB Economic Commentary
Even in technology there are monstrous firms that are power thirsty and try to have the whole market to themselves. Comcast wants to acquire Time Warner Cable for a $45-billion offer. This is a disadvantage to the consumers because Comcast will have the position as the dominant cable operator. Furthermore, that could lead to a decline in competitive pressure. Therefore, is it a wise decision for the deal to be allowed to go through? Monopoly is a single firm that controls the market of a given product. In a monopoly there is an absence of competition, which results in high prices and inferior products. Because there is an absence of competition and the firm has total domination of the market, the demand curve in the entire market for the good is equal to the demand for the individual firm’s output. A key characteristic of a monopoly is the individual’s firm downward sloping demand that shows that the firm has some market power. Market power is the ability to control price without losing market share. A monopoly’s profit maximization is achieved when marginal cost equals marginal revenue.
Comcast is already a monopoly in a few states, but with the acquisition of Time Warner Cable, it will obtain coverage of almost one third of the United States as seen in the map below (Graph 1). With one third of the United States covered by one cable corporation, that leads to an absence of competition. Therefore, we see in the graph below that Comcast will cause