Last October 26, Heritage scholar James Gattuso and I published an essay in The Daily Signal, explaining that the proposed vertical merger (a merger between firms at different stages of the distribution chain) of AT&T and Time Warner (currently undergoing Justice Department antitrust review) may have the potential to bestow substantial benefits on consumers – and that congressional calls to block it, uninformed by fact-based economic analysis, could prove detrimental to consumer welfare. We explained:
[E]ven though the proposed union of AT&T and Time Warner is not guaranteed to benefit shareholders or consumers, that is no reason for the government to block it. Absent a strong showing of likely harm to the competitive process (which does not appear to be the case here), the government has no business interfering in corporate acquisitions. Market forces should be allowed to sort out the welfare-enhancing transactional sheep from the unprofitable goats. Shareholders are in a position to “vote with their feet” and reward or punish a merged company, based on information generated in the marketplace.
[M]arket transactors are better placed and better incentivized than bureaucrats to uncover and apply the information needed to yield an efficient allocation of resources.
In short, government meddling in mergers in the absence of likely market failure (and of reason to believe that the government’s actions will yield results superior to those of an imperfect market) is a recipe for a diminution in—not an improvement in—consumer welfare.
Furthermore, by arbitrarily intervening in proposed mergers that are not anti-competitive, government disincentivizes firms from acting boldly to seek out new opportunities to create wealth and enhance the welfare of consumers.
What’s worse, the knowledge that government may intervene in mergers without regard to their likely competitive effects will prompt wasteful expenditures by special interests opposing particular transactions, causing a further diminution in economic welfare.
Unfortunately, the congressional critics of this deal are still out there, louder than ever, and, once again, need to be reminded about the dangers of unwarranted antitrust interventions – and the problem with “big is bad” rhetoric. Scalia Law School Professor (and former Federal Trade Commissioner) Joshua Wright ably deconstructs the problems with the latest Capitol Hill criticisms of this proposed merger, set forth in a June 21 letter to the Justice Department from eleven U.S. Senators (including Elizabeth Warren, Al Franken, and Bernie Sanders). As Professor Wright explains in a June 26 article published by The Hill:
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.
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. . . .
[However,] [a]s 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. . . .
[C]onsider 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. . . .
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 [Senators’] 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 [of the Senators’ letter].
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.
Professor Wright’s excellent essay merits being read in full.
