THERE ARE FOUR MAJOR RECORD companies, four national wireless phone carriers, four Baby Bells and four international auditing firms. Mere coincidence? Perhaps not. Each of those industries has consolidated in the last decade, and the ranks of music and phone companies may shrink further if pending or rumored deals win approval. The increasing concentration in these and other market segments has forced antitrust officials around the globe to grapple with a fundamental question: How many competitors do you need to generate real competition?
Lately, the answer often given by federal regulators is "four." Mergers that would leave a market segment with three or fewer significant players are far more likely to be challenged by the Federal Trade Commission or the Justice Department than those that leave a market with four or more powerful rivals.
Economists will tell you that there's no magic number. There are too many variables, including the type of product, the openness of the market and how easily buyers can switch from one seller to another. Two big players could be enough in an industry with products that are easy to make and differentiate: Witness the fierce competition between Coke and Pepsi, which yields relentless innovation (and anyone who doesn't consider Diet Black Cherry Vanilla Coke an innovation just hasn't tried it). In other markets, such as the oil industry, regulators have challenged mergers even when there are 10 significant rivals.