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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.
The recent history of antitrust — from Microsoft to PeopleSoft to Whole Foods — is one in which the conventional wisdom of how to define the “market” affected by mergers and other transactions is not infrequently dead wrong. Today’s big deal is Yahoo! establishing a test advertising outsourcing deal with Google. Many observers, including Microsoft’s General Counsel, have already opined that such a deal would be DOA, as it would add to the dominant firm in the “search advertising market.”
But is that really what’s going on here? I am not so sure. Search is only important as a vehicle by which web sites and portals aggregate users to sell to advertisers. It is also free to non-enterprise users. So a cogent argument can be made that Internet search is irrelevant except as an advertising tool and that Internet advertising is NOT the relevant market for this deal, because online advertising already is or shortly will be competitive with (in other words, a substitute for) traditional media advertising like radio, newspapers and magazines. And to limit Internet advertising to “search advertising,” but ignore the fact that it is AOL, Microsoft and Yahoo! who collectively have a significant advantage in non-search Internet advertising — which seems to account for a majority of all Internet advertising — on first blush suffers from that same old market defintion problem.
In fact, here’s what the Wall Street Journal had to say this morning:
Major brand advertisers are gearing up to move big chunks of money from traditional ads including TV commercials and glossy magazine spreads to online outlets such as video-sharing services and Web sites for women. Although online ads garnered only an estimated 7% of total U.S. advertising dollars last year, Internet companies believe the percentage will increase sharply as Americans ratchet up their daily use of the Web and advertisers gain confidence in the medium.
As an antitrust lawyer, that tells me the data to establish that Internet ads are a subset of a broader advertising market — one in which, almost by definition, Google is not a “dominant” or even large player — may be there. Now it’s up to the advocates, economists and enforcement officials to figure out the answer.
Disclaimer — I have provided analysis to stock brokers and market research analysts on the Microsoft-Yahoo! fight, but am not currently working as a lawyer for any party to or company interested in the potential transaction.
Microsoft’s Steve Ballmer, once again on an anti-open source crusade, now says that Linux is a “cancer” but that the new Windows Server 2003 product can compete with free software because is it “innovative.”
Innovation is not something that is easy to do in the kind of distributed environment that the open-source/Linux world works in. I would argue that our customers have seen a lot more innovation from us than they have seen from that community. . . . Linux itself is a clone of an operating system that is 20-plus years old. That’s what it is. That is what you can get today, a clone of a 20-year-old system. I’m not saying that it doesn’t have some place for some customers, but that is not an innovative proposition.
All this from the company that brought us a desktop GUI in 2000 that Apple made available in 1987, that specializes in buying technology developed elsewhere (DOS, PowerPoint, IE, etc.) and that still cannot fugure out how to put a laptop computer to sleep. Eat your Cheerios, Steve, you’re going to need them. All you have is monopoly power; in the long-run, that’s not enough to save the company.
Apple Adds Features to Safari Browser [CNET News.com]. Apple Computer this morning released an updated beta version of its Safari Web browser as part of a reported effort to “distance its software environment from Microsoft’s.” Apple says that:
Safari offers you a superior Web experience with outstanding performance. Even the most complex of pages load at breakneck speed. Safari zips right by Microsoft’s Internet Explorer for the Macintosh, as it launches, loads pages, and executes JavaScript much more quickly. But that’s not all. Safari uses the advanced interface technologies underlying Mac OS X to offer you an all-new view of the Web, one that’s much easier to use.
Many folks, myself included, felt that the network effects characteristics of the software industry meant that the browser market had already “tipped” decisively to IE. Which would suggest that there is little reason for anyone, including Apple, to innovate in the browser space. So what is going on here? Platform independence perhaps, but it is unclear what the commercial benefits are (if any) that accrue to Apple from developing a new browser. Having said that, I am indebted to Steve Jobs and am rapidly becoming a devoted Safari user.
The Microsoft antitrust case is not over! Appeals Court to Hear Case vs. Microsoft [InfoWorld].
Well, here we go (again). I’ve been working on the Microsoft antitrust case since 1998, and now … finally … the whole thing may be coming to a resolution. Yesterday the U.S. Court of Appeals for the D.C. Circuit set the appeal by CCIA and SIIA to be heard “en banc” on an accelerated schedule. The question is whether the settlement proposed by the government and approved by a lower court is “in the public interest.” Hang on until late this year for an answer.
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April 16th, 2008 | 
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