The End of ‘Don’t Worry, Be Happy’ Antitrust Era
Posted December 10th, 2009 by Mark Cooper
The announcement of the Comcast-NBC merger has unleashed the predictable chorus of free market ideologues (like the Progress and Freedom Foundation and the Wall Street Journal), parroting the claims of the merging parties. Without any detailed analysis of the deal, they claim that new efficiencies will benefit consumers and that there is more than enough competition to prevent abuses.
Thankfully, the era of “don’t worry, be happy” antitrust enforcement in America is over.
Ironically, the very same ideologues, who snap to attention to salute every media and telecommunications merger, accuse public interest groups of knee-jerk opposition to these mergers. In a feeble attempt to prove that public interest groups are overreacting, they have listed a number of recent mergers that, they claim, did not result in the sky falling in on consumers (AT&T-SBC, Verizon-MCI, News Corp.- DirecTV, AOL-Time Warner, XM-Sirius). But they draw the wrong conclusions from the track record of these mergers in three crucial respects.
First, these mergers were prevented from doing their worst because, in every case, antitrust authorities imposed important conditions to prevent the anticompetitive, anti-consumer harms that consolidation would have produced.
Second, the post-merger world is far from the nirvana that the conservatives make it out to be. They all did result in consumer harm, despite the conditions placed on those transactions that mitigated harm to some extent. Particularly, the telecom mergers were consumer disasters. They eliminated the major competitors in the marketplace for wireline broadband service, reversed the outcomes of the pro-competitive breakup of AT&T and the pro-competitive 1996 Telecommunications Act, and handed us a guaranteed wireline duopoly that has resisted meaningful price competition ever since. These mergers also resulted in massive consolidation in the wireless industry (by virtue of granting huge market power to these wireline companies that also had wireless services) – pushing AT&T and Verizon into dominant positions that are quickly giving us the same problem in mobile communications. The quality of TV programming has taken a beating because the TV networks were allowed to buy movie studios, and independent production of TV programming was all but eliminated from prime time.
Third, the failure of these mergers to produce the synergies and efficiencies these companies promised reminds us that the claims of efficiency that were used to justify mergers in the past decade were vastly overblown.
The “efficient market hypothesis” that allowed companies to wave a magic efficiency wand and blind the antitrust authorities to the anticompetitive impact of the mergers was the cornerstone of the “don’t worry, be happy” era. Now, the “efficient market hypothesis” is crumbling. It is buried, if not dead, beneath the rubble of the financial system. Regulation is a punitive price to be paid when markets fail; it’s a vital protection against market failure. This is exactly the role that antitrust review of mergers has played for over a century. It is explicitly intended to prevent damage to competition before the fact.
Perhaps the greatest proponent and practitioner of the “don’t worry, be happy” school of antitrust thought is Alan Greenspan. Yet, a year ago, under cross-examination by Rep. Henry Waxman (D-Calif.), Greenspan admitted that there was a flaw in his theory. Greenspan put it as follows:
“Those of us who looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief… I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”
The public interest movement has always believed that the pursuit of profit is not synonymous with the public good, but Greenspan’s admission goes one step further. The pursuit of profit is not even synonymous with private good. The lesson we must learn from this is that the assumption that the market will take care of everything is simply wrong.
The effort to dismiss concerns about the Comcast-NBC merger ignores the large size, prominent position and powerful incentives Comcast-NBC would have to abuse its power. Comcast is the largest cable operator in the United States., larger than the next three cable operators combined. Its holdings are concentrated in the major media markets. It is also the largest broadband Internet service provider and has a dominant market share in the local markets it serves.
NBC is one of four major national broadcast networks, “a global brand with an iconic legacy (news, sports and Primetime,” and a particularly prominent position in national and local news. Combining the broadcast network with the cable channels, Comcast-NBC would have ownership interests in almost a dozen of the video networks that “deliver mass-market audience with 100 percent reach of U.S. TV households.” There are only a few dozen such networks.
This large size and crucial position provide Comcast with the muscle to pursue its private interest at the expense of the public interest. The potential impact of this merger demands that it be scrutinized carefully by both the antitrust authorities and the Federal Communications Commission. It should not be waived through based on bogus historical analogies or discredited theories of market efficiency.
Comcast-NBC poses a unique threat because it is a dagger aimed at the heart of the Internet, a direct competitor to cable for multichannel video distribution. Allowing the largest cable and broadband service provider to buy one of the top four video programmers would create a huge incentive to lock content behind the new pay walls cable companies want to build.
If Comcast wants to become a programming giant, it should do so the old-fashioned way… It should develop new programming and compete to win audiences.
This is a guest blog post from Mark Cooper, director of research at the Consumer Federation of America.
