In January 2007, XM enjoyed about 58% of satellite radio subscribers, and Sirius

Question

In January 2007, XM enjoyed about 58% of satellite radio subscribers, and Sirius
had the remaining 42%. Both firms were suffering losses, despite their dominance in
the satellite radio market. In 2008, the DOJ decided not to challenge a merge, and
these two firms united become Sirius XM. If you were an economic consultant for
Sirius, what economic arguments would you have presented to the DOJ to persuade
it not to challenge the merger? Explain. (Hint: What is your market definition? Is your
market contestable?)

Explanation / Answer

I would persuade the DOJ not to challenge the merger on the basis that the market for satellite radio is unit elastic. Consumers have a choice of whether they would like to pay extra for this service or not. There are lots of close substitutes on FM radio and we are not a oligopoly or a monopoly. If a consumer wishes to pay extra for a servie, this is their choice as long as there are products available to them for eaul of lesser vlue. In the case, they are not obligated to listen to us and can listen to FM radio for free. Hope this helps

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