Wednesday, June 6, 2018

Comcast Acquisition of NBCUniversal Did Not Cause Anti-Competitive Behavior; Precedent for AT&T Time Warner?

One objection--perhaps the major objection--to the proposed AT&T acquisition of Time Warner is that the merger would lead to higher prices. That also was alleged when Comcast bought NBCUniversal.

And though Department of Justice officials have said they do not believe in behavioral remedies (essentially, price controls and oversight), the evidence from one study suggests “either that there was no net positive effect on incentives to raise prices above competitive levels following the vertical merger, or else that the behavioral remedies placed on the Comcast-NBCU merger have been effective.”

In other words, the seminal Comcast acquisition of NBCUniversal, which essentially is the model for AT&T, did not lead to higher prices paid by distributors who buy NBCUniversal content.

That might be reason for believing that the proposed acquisition of Time Warner would not inevitably or necessarily lead to higher prices paid by distributors wanting access to key Time Warner content. In fact, some argue AT&T has clear incentive not to take unfair advantage of its programming customers.  

To be sure, DoJ lawyers--aside from opposing the proposed deal--also favor structural remedies (asset divestitures) in place of behavioral remedies that require the agency to continually monitor firm actions. And AT&T has said it will not offer such concessions.

Some argue the government’s case will fail, as federal antitrust officials have not won a vertical integration case in half a century, presumably because vertical mergers do not reduce competition in markets.

That is not to say anticompetitive actions are impossible, even after a merger that does not reduce competition. But such actions are anything but automatic, and Federal Trade Commission enforcement remains present.

Typically, the reasons for a vertical merger have to do with internal operating costs or some other advantage related to reducing input costs. In other cases, the rationale is to reduce reliance on revenue from only one segment of a full value chain, especially if the existing role is under financial or strategic pressure.

The point is that vertical mergers do not eliminate competition, by definition, and are not therefore automatically injurious to consumer welfare. There does not seem evidence that the Comcast acquisition of NBCUniversal, for example, caused problems in that regard.

And that is one reason for believing that an AT&T acquisition of Time Warner might well benefit AT&T, as well as its customers.

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