The Economic Policy Institute (EPI)-a lefty, pro-labor think tank-recently produced a study coming down against the proposed merger between MCI-Worldcom and Sprint.  Of course, this shouldn't be all that surprising given that MCI-Worldcom and Sprint are not unionized.

The study says that the merger would increase market concentration; suggests that such market concentration is anti-competitive; declares that new market entrants face a "brand name barrier" to competition; and asserts that efficiencies can be gained without a merger.  Therefore, the authors suggest that the two firms should not be allowed to merge, or if allowed, an extensive divestiture of Sprint assets should be imposed.

What passes for economic reasoning and analysis these days is rather pathetic.  First, the EPI illustrates a firm grasp of the obvious, i.e., that a merger of two companies in the same industry will increase market concentration. 

However, the EPI analysis goes on to assert that such a merger will have anti-competitive effects.  How?  Well, they claim that a widening gap between costs and consumer prices, and "supernormal" profits exist.  Of course, what might be considered "supernormal" (an oxymoron, if there ever was one) profits is anybody's guess, or more accurately, anybody's definition.  In addition, the authors seem to forget the purpose of profits in a market economy, i.e., they act as signals which attract new competitors.

As for the idea that a "brand name barrier makes it difficult for new companies to gain immediate recognition to compete with established companies," this criteria can only be taken seriously by economists isolated from real world of economics inside the Beltway.  Of course, it takes time and resources to compete with established companies.  And many firms have and are making such investments.  After all, there are hundreds of firms competing in the long-distance arena, and the Baby Bells are poised to enter as well.  However, labeling this economic reality as a "brand name barrier" to competition would empower government to step in and stop almost any merger among well-established firms.  It not only would be an economically misguided step-based on the status quo and ignoring the dynamics of the marketplace-but a politically dangerous one as government would be further empowered to dictate the future of U.S. industry.

Finally, these economists have decided that the firms need not merge to gain efficiencies, and therefore, the companies should not be allowed to merge.  Fortunately, consumers are far better judges of the relative successes and efficiencies of mergers than are economists and government antitrust bureaucrats. 

The market works.  Consumers will gain in terms of price and service from the MCI-Worldcom merger with Sprint one way or another.  Either the merged firm will offer gains in terms of innovation and efficiency, or it will be overtaken by current or future competitors.