Democrats must end fiery rhetoric against AT&T-Time Warner merger
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The recent letter opposing the merger of AT&T and Time Warner Inc., signed by a scattering of U.S. senators including Al FrankenAlan (Al) Stuart FrankenDemocrats turn on Al Franken Schumer called, met with Franken and told him to resign Overnight Finance: Trump says shutdown 'could happen' | Ryan, conservatives inch closer to spending deal | Senate approves motion to go to tax conference | Ryan promises 'entitlement reform' in 2018 MORE (D-TK), Elizabeth WarrenElizabeth Ann WarrenOvernight Regulation: Net neutrality supporters predict tough court battle | Watchdog to investigate EPA chief's meeting with industry group | Ex-Volkswagen exec gets 7 years for emissions cheating Overnight Tech: Net neutrality supporters predict tough court fight | Warren backs bid to block AT&T, Time Warner merger | NC county refuses to pay ransom to hackers Avalanche of Democratic senators say Franken should resign MORE (D-Mass.), and Bernie SandersBernard (Bernie) SandersSchumer: Franken should resign Franken resignation could upend Minnesota races Avalanche of Democratic senators say Franken should resign MORE (I-Vt.), epitomizes a powerful and emerging far-left economic fringe with its sights set on changing antitrust law.

Over the past several decades, there has been resounding and bipartisan agreement — amongst mainstream antitrust economists, practitioners, enforcement agencies, and even politicians — that while mergers between vertically aligned companies, like AT&T and Time Warner, can in rare circumstances harm competition, they usually make consumers better off. The opposition letter is a call to disrupt that consensus with a “new” view that vertical mergers are presumptively a bad deal for consumers and violate the antitrust laws.

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The call for an antitrust revolution with respect to vertical mergers should not go unanswered. Revolution actually overstates things. The “new” antitrust is really a thinly veiled attempt to return to the antitrust approach of the 1960s where everything “big” was bad and virtually all deals, vertical ones included, violated the antitrust laws. That approach gained traction in part because it is easy to develop supporting rhetoric that is inflammatory and easily digestible.

 

Soundbites from the opposition letter give a taste of that type of rhetoric when it warns — contrary to the actual facts of the transaction — that “the combined company’s unmatched control of popular content” will lead to high prices, and that “allowing one giant company … to control the content available to Americans would threaten the basic principles of our democracy.” That all sounds very scary, but all it really says — and all the opposition’s letter manages to show — is that both AT&T and Time Warner are large companies.

There is an evidence-based alternative to deciding antitrust policy with “big is bad” rhetoric. On behalf of the consumers whom the antitrust laws are designed to protect, it is worth pausing and asking — as dispassionately as one can in these debates — about the basis for the antitrust consensus that vertical mergers are generally procompetitive. Perhaps mainstream antitrust economists, practitioners, and agencies were duped. But the evidence suggests otherwise. As a matter of fact, the overwhelming weight of economic analysis and empirical evidence serves as a much-needed dose of cold water for the fiery rhetoric in the opposition letter and the commonly held intuition that all mergers between big firms make consumers worse off.

An op-ed is no place to summarize in detail 30 years of empirical evidence — but consider the conclusion of a widely cited summary of dozens of studies authored by Francine LaFontaine and Margaret Slade, two very well respected industrial organization economists (one who served as director of the U.S. Federal Trade Commission’s bureau of economics during the Obama administration). It found that “consumers are often worse off when governments require vertical separation in markets where firms would have chosen otherwise.” Or consider the conclusion of four former enforcement agency economists reviewing the same body of evidence that “there is a paucity of support for the proposition that vertical restraints [or] vertical integration are likely to harm consumers.”

This evidence by no means suggests vertical mergers are incapable of harming consumers or violating the antitrust laws. The data do suggest an evidence-based antitrust enforcement approach aimed at protecting consumers will not presume that they are harmful without careful, rigorous, and objective analysis. Antitrust analysis is — or at least should be — a fact-specific exercise. Weighing concrete economic evidence is critical when assessing mergers, particularly when assessing vertical mergers where procompetitive virtues are almost always present.

For just one example, AT&T’s acquisition of Time Warner will likely facilitate more efficient distribution of content to consumers. AT&T owns very little of its own programming, and cannot deliver content unless the content’s creator grants the necessary rights. Acquiring Time Warner will allow AT&T to significantly reduce the bargaining friction and transaction costs associated with negotiating those agreements, enabling it to innovate and build new mobile video products more tailored to consumers’ interests, and to respond more effectively to compete against incumbent cable operators.

The opposition letter rails against the risk of anticompetitive foreclosure. That is always the potential concern with vertical mergers, at least where the merged entity will have substantial market power in all relevant markets. But the evidence suggests that that risk rarely comes to fruition while the efficiencies of vertical integration that benefit consumers generally do. LaFontaine and Slade conclude that foreclosure is rare even in concentrated markets.

As is the case with many vertical mergers, a combined AT&T-Time Warner will not favor its own programming nor deny competing distributors its programming because it is not likely to make economic sense to do so, particularly given the intense competition it will face in all of its respective markets. As a distributor of video services, AT&T must offer the programming its customers want, regardless of whether AT&T owns the programming. Combined, AT&T and DirecTV carry more than 500 channels delivered by more than 300 different programmers, a large portion of which are independent programmers that provide programming geared toward diverse audiences.

If AT&T failed to provide a wide variety of content to its customers, the company would diminish the value of its own video distribution services and lose customers as a result. AT&T’s competitors carry that programming today and will do so after the merger. By the same token, refusing to sell Time Warner content to rivals would be economically irrational, as it would cause massive revenue losses, devalue the brand, and be unlikely to win many customers that are increasingly turning to Netflix, Amazon, and other over-the-top providers.

The economic and legal framework for analyzing vertical mergers is well understood by the U.S. Department of Justice’s antitrust division and its staff of expert lawyers and economists. The antitrust division has not hesitated to determine an appropriate remedy in the rare instance where a vertical merger has been found likely to harm competition. The opposition letter is correct that a careful and rigorous analysis of the proposed acquisition is called for — as is the case with all mergers. That review process should, however, be guided by careful and objective analysis and not the fiery political rhetoric.

Under the leadership of soon-to-be U.S. Assistant Attorney General Makan Delrahim, an experienced antitrust lawyer and antitrust enforcement agency veteran, the Justice Department antitrust division staff will be empowered to conduct precisely that type of analysis and reach a decision that best protects competition and consumers.

Joshua D. Wright is a professor at the Antonin Scalia Law School and director of the Global Antitrust Institute at George Mason University. He served as a member of the U.S. Federal Trade Commission during the Obama administration.


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