The Sirius XM Merger in the Court of Public Opinion

Josh Wright —  2 March 2007

The proposed merger has been making lots of waves in the press as of late, including a Congressional hearing (Antitrust Review has links to all the hearing testimony) but not much serious grappling with the antitrust issues. I even read today that John Ashcroft has chimed in. Of course, it is very difficult to do much serious analysis about likely competitive effects without more information than is available publicly.

In any event, the WSJ has an informative exchange between Mark Cooper of the Consumer Federation of American and Donald Russell of Robbins Russell with the former arguing the merger will be anticompetitive and the latter challenging the standard arguments offered in favor of that proposition. It is a fairly entertaining read and a good summary of the antitrust arguments likely to be raised by the parties for those that are interested. My own take on this exchange: advantage Russell. Here’s an excerpt:

Antitrust lawyers often use a simple rule of thumb — if competitors oppose a merger, it’s usually good for consumers. And here, the AM and FM broadcasters, through their trade association, the National Association of Broadcasters, are opposing the merger very strongly. It’s hard to see any reason they would do so, other than the obvious reason: A concern that a merged company will take more listeners away from the broadcasters than XM and Sirius would be able to do as separate companies. In other words, that the merged company would offer a service that would be more attractive to consumers than the services they’re currently getting from XM and Sirius. So the first question I have for Mark and other merger opponents is this: If satellite radio doesn’t compete with AM and FM radio, why is the NAB fighting so hard to stop this merger?

My colleague Tom Hazlett made a similar point regarding the NAB efforts in a Miami Herald story (registration required) a few days ago:

If you’re an anti-trust enforcer and you see that all the competitors are banding together to oppose a merger in the name of “public interest,” it’s pretty easy to figure out that the truth is exactly the opposite.

This merger is an example I have discussed from time to time in my antitrust courses over the past couple of years, and one that may potentially raise some pretty interesting issues depending on the way the facts play out.  Should be fun to watch.

One response to The Sirius XM Merger in the Court of Public Opinion

  1. 

    David Henderson made the same point — a powerful one, I think — in a WSJ op-ed last week:

    Suppose you buy regularly from a firm that wants to merge with another firm in the same industry. You might worry that the merged firm would use its increased market power to raise the price you pay. But imagine if you notice that these two firms’ other competitors are among those clamoring for the government to prevent the merger.

    Would these other competitors oppose the merger if they thought the merger would raise prices for what you bought? Not likely. If that is what they thought would happen, these other competitors would love the merger — because it would allow them to raise their own prices somewhat, or to keep their prices the same but sell more.

    If they oppose the merger, the reason is far more likely to be that they fear the net effect would be to lower the prices of the goods or services they sold — which means that consumers would be better off with the merger than without.

    How can a merger lead to lower prices? A larger firm might have increased market power, allowing it to raise prices; but the larger firm might have economies of scale, leading to reduced costs and lower prices.

    Which effect the merger would create is of course uncertain — but what competing firms think about the proposed merger is a very strong clue, as they typically have more information about the market than do the regulators. When competitors oppose a merger — as is the case of “free radio” broadcasters with regard to Sirius and XM — they must be making a judgment that the “economies-of-scale effect” outweighs the “market-power effect.” The FCC should take them at their word.