One function of anti-trust law in this country is to prevent the merger of companies when the DOJ feels that such a merger would create an "uncompetitive" environment.
They decide and define an uncompetitive environment by using the HHI - an index that essentially sums the squared market share of each competitor in a particular market. Mergers that increase the HHI beyond an acceptable limit or too quickly are deemed anti-competitive and blocked.
And here lies the problem. The DOJ gets to define the scope of the market and which companies are viewed as participants.
I have done absolutely zero research on the topic, but I heard today that AT&T dropped its bid to merge with T-Mobile in light of opposition to the merger by the DOJ. Now, this may or may not be a problem in this case, but mergers can be useful tools for companies to pool research resources, reduce costs so as to avoid bankruptcy, and allow companies to expand their market penetration without incurring the full expenses.
How might mergers be bad? Generally, mergers are seen as bad if you do not trust the market to control the size and dominance of an unprotected monopolistic company. Even if market power increases, competition, and potential competition, still exist to keep the company efficient and focused on serving customers. Where do problems come in? If the company is in some way subsidized/protected/funded by the government, that is when you have to worry about how big it gets. But why fix that worry by limiting all mergers? Why not just remove the government protection of the few?
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