A day after the FCC’s
termination of network neutrality rules, District Court Judge Richard J. Leon
will announce the verdict in the Justice Department’s suit against AT&T’s acquisition
of Time Warner. See https://www.nytimes.com/2018/06/10/technology/att-time-warner-ruling.html. I’m betting the Judge will apply “old school”
competition policy analysis finding no significant harm in this $85 billion
deal that he will frame as vertical integration among non-competitors. This ruling will lead to even more industry
consolidation always framed as necessary to achieve scale, efficient operations
and effective competition. We have not heard much about how these acquisitions
offer consumer benefits, apparently because advocates do not have to bother
telling us.
Using
the perspective of Chicago School economists, vertical mergers and acquisitions
trigger limited concern about harm to competition and consumers while
horizontal deals eliminate a competitor and further concentrate a market. The prevailing wisdom assumes vertical
integration can achieve benefits for the merging parties without offsetting
harms to consumers largely because judges assume the two merger-aspiring ventures
do not compete in the same market segments.
In
the Information, Communications and Entertainment (“ICE”) markets,
deep-pocketed ventures operate throughout the marketplace with extensive
vertical and horizontal integration. It
makes no sense to assume any ICE venture involving major incumbents, such as
AT&T and Time Warner, operate in mutually exclusive market segments. Decision makers do not seem willing, or able
to understand that the Internet ecosystem seamlessly combines conduit and
content and the ICE marketplace has fully integrated converging markets and
technologies.
Consider
the conditionally approved acquisition of NBC-Universal by Comcast in
2011. Even then, Comcast operated
extensively in both content creation and content delivery. It made no sense to consider the deal as
solely occurring in a vertical “food chain” with Comcast a downstream
distributor of content created mostly by unaffiliated ventures such as NBC. In 2011, Comcast had 100% ownership interests
in content networks including E!, Golf Channel Versus, G4, and dozens of
regional sports networks, with minority interests in dozens of other networks. See https://apps.fcc.gov/edocs_public/attachmatch/FCC-11-4A1.pdf
at p. 177.
It
seems that competition policy models do not easily lose traction after having
made the transition from academic theory, to preferred model by stakeholders,
to conventional wisdom. For example, the Chicago School and now case precedent
hold that no venture would ever deliberately underprice a good or service for
any period of time beyond a blockbuster sale, e.g., the day after Thanksgiving
(“Black Friday”). The prevailing wisdom
concludes that the underpricing company would have no good likelihood for recouping
its losses, particularly in competitive markets that would foreclose
gouging. How then can judges and
academics—including Chicago School economists—make sense of the ongoing
business plan of Amazon and other Internet “unicorns” to forgo profits for
years in the pursuit of market share and expanding “shelf-space” for products
and services?
Day
by day consumer safeguards evaporate in the ICE marketplace. I am not endorsing ex ante remedies that anticipate
problems, but may well create their own through inflexibility. But in this current environment, even ex post
responses to legitimate complaints do not appear necessary. Who needs a largely
impartial and qualified referee when economic doctrine assumes the market can
solve or prevent all ills?
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