Assessing Merger Impacts on Consumer Welfare in a Converging Internet Marketplace
By Rob Frieden (Pennsylvania State University)
This article identifies substantial flaws in how U.S. government agencies and courts assess merger proposals by ventures operating in the information, communications and entertainment (“ICE”) marketplace. Using current market definitions, consumer impact assessments and economic doctrine, antitrust enforcement agencies may fail to identify the risk of harm to consumers and competition, a so-called false negative.
In recent years, the Department of Justice, Federal Communications Commission and Federal Trade Commission, individually and collectively, have assessed the competitive consequences of numerous multi-billion dollar acquisitions and have conditionally approved almost all of them. These agencies appear predisposed to favor deals that involve vertical integration up and down market segments, based on an assumption that short terms consumer welfare gains would exceed any potential competitive harms.
The article concludes that reviewing government agencies appear to overemphasize past and current marketplace conditions rather than assess future impacts on consumers and competition. By “fighting the last war,” these agencies fail to identify new risks to consumer welfare, particularly by ventures operating in multiple markets that do not readily fit into the conventional assessment of mutually exclusive vertical and horizontal “food chains.” In an ecosystem where both technologies and markets converge, ventures can appear to offer consumers an incredible value proposition akin to a “free lunch.” A better calibrated, multi-dimensional analysis would identify significant offsetting harms.
The article suggests that the narrow fixation on near term impact on consumers and the prices they pay insufficiently assesses the potential for harm, particularly for Internet-based ventures that require no cash payment for service. Government antitrust enforcement agencies compound mistakes in market impact assessment by ignoring how firms finance “free services” through often obscured collection, analysis and sale of consumer data. In light of increasing concentration in the ICE marketplace, through mergers and the impact of converging technologies, surviving ventures can adversely impact both core and now more closely integrated, adjacent markets.
The article will examine how and why the FTC approved the acquisition of DoubleClick by Google in 2007, having concluded insignificant competitive harm will occur even as Google quickly grew to dominate nearly all sectors of the ICE advertising marketplace. The article also evaluates whether in conditionally approving Comcast’s acquisition of NBC/Universal the FCC failed to safeguard consumers. Additionally, the article considers whether AT&T, as anticipated by reviewing courts, flowed through to consumers any of the anticipated efficiency gains and cost savings generated by its acquisition of Time Warner.
The article concludes that recent and future ICE acquisitions have a much greater likelihood of generating legitimate concerns about competitive and consumer harms, particularly as ICE market becomes ever more concentrated and often dominated by a single firm. The article does not recommend a repudiation of Chicago School antitrust doctrine, but recommends that reviewing agencies and courts calibrate empirical measures of prospective costs and benefits of a proposed merger by identifying short term and longer-term impacts on core and adjacent markets.