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No Dodgers, No Merger

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On behalf of the Sports Fans Coalition, I filed a brief yesterday with the FCC urging it to block the acquisition by Comcast Corp. of Time Warner Cable Inc. The gist of the argument is that the anticompetitive effects of vertical integration by cable systems have now reached crisis proportions with the ongoing refusal — already more than five months old and with no end in sight — of TWC to license Los Angeles Dodgers baseball games for cable or satellite distribution, or local broadcast, on any network other than its own SportsNet LA cable programming channel.

Hence this bold call for a remedy:

The Commission [should] hold the Applications in abeyance, declining to act all in this docket, unless and until TWC makes the SportsNet LA channel, and its exclusive Los Angeles Dodgers baseball content, available to all competing MVPDs at “fair market value and on non-discriminatory prices, terms and conditions,” and on the merits either (a) deny the Comcast-TWC request for transfer-of-control in its entirety, or (b) require the divestiture of all of Comcast’s RSN properties — sufficient for an independent competitor to operate the channels on profitable, going concern basis — as a condition to approving the acquisition of TWC.


Is Bazaarvoice Bizarre?

When is a prediction not worth relying upon? For purposes of analyzing mergers under the Clayton Antitrust Act, a recent decision in favor of the Justice Department indicates that predictions are worth less — perhaps are even worthless — when they are contradicted by the actual facts of the marketplace. The government’s successful legal challenge a couple of weeks ago to the merger of two Internet start-ups ironically shows that the force of predictive judgments remains powerful, even when courts could employ reality as a basis for accurate comparison.

Some background. A 2013 DisCo post authored by the undersigned contrasted “future markets,” where the contours of products and entry do not yet exist and cannot reliably be predicted, with “nascent markets,” in which those features indeed exist but only in their infancy. My thesis was that antitrust enforcement in the latter is preferable because looking back at nascent markets once they have a chance to develop gives the government a more accurate basis on which to assess the actual impact of mergers and concentration than rank projections in which policymakers have no comparative expertise.

The case used to illustrate this theme was United States v. Bazaarvoice, Inc., in which the Justice Department sued to unwind a 2012 merger, already completed, between two firms in what it called the online ratings and reviews platform market. I concluded that

by challenging the merger post-consummation, DOJ has avoided basing its enforcement decisions on predictions of future markets and instead the case should rise or fall on the accuracy of its ex post analysis of actual competitive effects.

That’s not at all what happened, though.

Continue reading Is Bazaarvoice Bizarre?

Future Markets, Nascent Markets and Competitive Predictions

No one in government or business has a crystal ball. Yet predictions of what is coming in markets characterized by rapid and disruptive innovation seem to be being made more often by competition enforcement agencies these days than in the past. It’s a trend that raises troublesome issues about the role of antitrust law and policy in shaping the future of competition.

Take two examples. The first is Nielsen’s $1.3 billion merger with Arbitron this fall. Nielsen specializes in television ratings, less well-known Arbitron principally in radio and “second screen” TV. Nonetheless, the Federal Trade Commission — by a divided 2-1 vote — concluded that if consummated, the acquisition might lessen competition in the market for “national syndicated cross-platform measurement services.” The consent decree settlement dictates that the post-merger firm sell and license, for at least eight years, certain Arbitron assets used to develop cross-platform audience measurement services to an FTC-approved buyer and take steps designed to ensure the success of the acquirer as a viable competitor.

In announcing the decree, FTC chair Edith Ramirez noted that “Effective merger enforcement requires that we look carefully at likely competitive effects that may be just around the corner.” That’s right, and the underlying antitrust law (Section 7 of the Clayton Act) has properly been described as an “incipiency” statute designed to nip monopolies and anticompetitive market structure in the bud before they can ripen into reality. Nonetheless, the difference is that making a predictive judgment about future competition in an existing market is different from predicting that in the future new markets will emerge. No one actually offers the advertising Nirvana of cross-platform audience measurement today. Nor is it clear that the future of measurement services will rely at all on legacy technologies (such as Nielsen’s viewer logs) in charting audiences for radically different content like streaming “over the top” television programming.

Crystal Ball

The problem is that divining the future of competition even in extant but emerging markets (“nascent” markets) is extraordinarily uncertain and difficult. That’s why successful entrepreneurs and venture capitalists make the big bucks, for seeing the future in a way others do not. That sort of vision is not something in which policy makers and courts have any comparative expertise, however. Where the analysis is ex post, things are different. In the Microsoft monopolization cases, for instance, the question was not predicting whether Netscape and its then-revolutionary Web browser would offer a cross-platform programming functionality to threaten the Windows desktop monopoly — it already had — but rather whether Microsoft abused its power to eliminate such cross-platform competition because of the potential long-term threat it posed. By contrast, in the Nielsen-Arbitron deal, the government is operating in the ex ante world in which the market it is concerned about, as well as the firms in and future entrants into that market, have yet to be seen at all.

This qualitative difference between nascent markets and future markets (not futures markets, which hedge the future value of existing products based on supply, demand and time value of money) is important for the Schumpterian process of creative destruction. When businesses are looking to remain relevant as technology and usage changes, they are betting with their own money. The right projection will yield a higher return on investment than bad predictions. Creating new products and services to meet unsatisfied demand may represent an inflection point, “tipping” the new market to the first mover, but it may also represent the 21st century’s Edsel or New Coke, i.e., a market that either never materializes or that develops very differently from what was at first imagined.

Continue reading Future Markets, Nascent Markets and Competitive Predictions

AT&T, T-Mobile & Behavioral Remedies


The world of communications has been dominated for three decades, since United States v. AT&T, by a rather unusual confluence of antitrust and regulation. This has led to several noteworthy cases over the years addressing the interplay of the two regimes and whether the Communications Act overrides or immunizes certain communications companies or practices from antitrust scrutiny.

Luckily that’s been settled. In today’s environment, the consequence is that AT&T’s multi-billion dollar proposed acquisition of wireless rival T-Mobile will be reviewed both by the Justice Department’s Antitrust Division and the FCC. While there are some differences — DOJ must sue to block the deal, while affirmative FCC approval is required — the reality is that both agencies will apply similar competition analysis to the transaction.

That’s where things get a bit dicey. For one (although beyond the scope of this post), there’s been a long-running policy debate over whether FCC review and approval adds anything or is now redundant.  More significantly, though, both DOJ and the FCC have shown a remarkable symmetry when it comes to “vertical” issues.  That is, when competitive concerns arise from the relation between a firm and “downstream” rivals — for instance, as in AT&T, local and long-distance telephone providers — both agencies have increasingly opted for behavioral rather than structural remedies.  (The latter go to the number and size of firms in a market, for instance by divestitures, while the latter direct the integrated post-merged firm what it can and cannot do in specified markets.)

Although the AT&T/T-Mobile deal has both horizontal and vertical elements, most media and analyst discussion to date has focused on direct competition for wireless subscribers, the classic horizontal concentration question. Regardless of the result there, observers can expect behavioral injunctions, whether by DOJ consent decree or FCC “conditions” to approval, addressing the deal’s vertical factors, for instance backhaul provided by landline telecom special access services and access to content (Web, television/video, etc.) from unaffiliated providers.

Behavioral conditions have been a growing feature of competition review in communications transactions in the U.S. for years, from AT&T/McCaw Cellular in 1993 to AOL/Time Warner in 2000 to Google-ITA earlier this year. Whether they work well, or not, is a different story for a different post. The record of their relevance and effectiveness is most decidedly mixed.


Airline Mergers and Oligopoly Pricing

In an editorial titled Some Myths About Airline Mergers, the Wall Street Journal today comments on the potential impact of a Delta-Northwest combination.

There is no question that the track record of airline mergers has been mixed, but the entire industry is the product of consolidation…. The industry that has resulted is the most competitive in the world, and provides Americans with far more airline service, at much lower prices, than before the industry was deregulated.

I think this is demonstrably correct. Although I can — and often do — complain about travel as much as the next frequent flier, the reality is that airlines give consumer exactly what they want. As customers, Americans have been seduced by cheap air fares and continue to insist on low prices despite the “costs” associated with them in reduced service, meals, baggage allowances, etc. The airline industry charges lower prices today than a decade ago, despite substantial consolidation and massive, billions-per-year operating losses. As a matter of economics, those facts teach that the market is highly competitive.

Some year ago, “oligopoly theory” was all the rage, predicting (like the standard Justice Department Merger Guidelines) that increased concentration in a market is likely to result in higher prices, as no firm in an interdependent market would risk a price war. In today’s economy, airlines — together with cellphone and wireless services, automobiles and numerous other highly concentrated markets — are proving that to be a big myth.  Some antitrust Neanderthals may disagree, but IMHO they are reading from a hymnal that no longer has much spiritual resonance.