The Price of Merger Approval and Triple Federal Enforcement

Cite this Article
Joshua D. Wright, The Price of Merger Approval and Triple Federal Enforcement, Truth on the Market (August 02, 2008),

Geoff and Thom (see the comments) continue to have the Whole Foods litigation covered.  I don’t and can’t have anything to add to their comments about the particulars of the litigation.  I will note, playing off my previous post on bad case law out there looking to be overturned, that there is significant demand for some guidance from the Supreme Court on horizontal mergers and market definition in particular.

Anyway, that “other” merger, Sirius/XM, has finally been approved after 17 months of delay and well after DOJ approval (see here for comments on the DOJ press release).  Wall Street Journal gives its take on the list of concessions the FCC was able to extract from the merging parties in order to obtain approval, including a 3 year price freeze, a la carte offerings, and setting aside 8% of programming for educational and minority broadcasters:

It’s hard to fathom the need for any of these preconditions. Even combined, the two companies are just 5% of the audio marketplace. Neither one has turned a profit, and last year they posted losses of $1.2 billion. Mr. Martin seems to think he’s dealing with Microsoft or Google. And in his zeal to extract political rents from Sirius XM, he’s only making it more difficult for satellite radio to survive.

This particular merger raises some interesting questions about what institutional structures would be optimal for merger enforcement.  Play along.  Assume both that there exist some anticompetitive mergers out there and that federal agencies and the courts can potentially  identify them and prosecute them at a cost that is exceeded by the benefits to consumers from enhanced competition.  I happen to believe both of those propositions.  But if you don’t, assume them for now.  What would the merger enforcement institution look like?

There are obvious problems with the current system.  Most obviously, the dual federal enforcement issue in the merger context is an issue that gets some play whenever antitrust institutions are reviewed or scrutinized.  Rightly so.  Its an odd set up.  Most conversations about it start with the concession, “well if we had to re-do it today, obviously it wouldn’t be done this way …. BUT.”  Along those lines, here’s what the AMC Report and Recommendations had to say about the dual federal enforcement question:

This system of “dual enforcement” has been the subject of periodic debate. Critics contend that having two agencies enforce the federal antitrust laws entails unnecessary duplication and can result in inconsistent antitrust policies, additional burdens on businesses, or other obstacles to efficient and fair federal antitrust enforcement. Some have suggested eliminating the FTC’s antitrust authority; others propose reallocating nearly all antitrust enforcement authority to the FTC, with the DOJ prosecuting only criminal violations of the The Commission recommends no comprehensive change to the existing system in which both the FTC and the DOJ enforce the antitrust laws.  There appears to have been little, if any, duplication of effort between the two agencies, and they typically have worked together to develop similar, if not identical, approaches to substantive antitrust policy.  Although
concentrating enforcement authority in a single agency generally would be a superior institutional structure, the significant costs and disruption of moving to a single-agency system at  this point in time would likely exceed the benefits. Furthermore, there is no consensus as to which agency would preferably retain antitrust enforcement authority.

There is no mention of the FCC.  I think it is no doubt true that the FTC and DOJ have had substantial success in developing informal mechanisms that reduce many of the costs associated with duplicative enforcement agencies.  Much of this is due to the fact that the FTC and DOJ share the same mission, agree on the right framework for the antitrust analysis, and have significant expertise in applying that analysis to mergers.  Perhaps the costs of consolidating merger control into one entity, if that were the desirable thing to do, would be greater than the benefits of such a move.  But none of those arguments appear to apply to the continued involvement of the FCC in merger control.  Where the FCC has some regulatory jurisdiction over the parties’ proposed merger, we can get results like what appears to have happened here: the DOJ (the agency with expertise in antitrust economics) approves the merger but the agency without that expertise imposes a price freeze as a remedy.  Even for those who believe the DOJ got it wrong, its pretty clear that this is a loss for principled antitrust analysis.

If I were re-designing the merger enforcement system from scratch, there would be a lot of tough calls to make.  Scrapping the FCC of authority to impose these sorts of conditions on mergers isn’t a tough call.  At least, I don’t think so.  Does anybody know of a principled economic argument in favor of FCC enforcement in addition to the dual federal structure?