[Cross posted at Truthonthemarket]
I don’t think so.
Let’s start from the beginning. In my last post, I pointed out that simple economic theory generates some pretty clear predictions concerning the impact of a merger on rival stock prices. If a merger is results in a more efficient competitor, and more intense post-merger competition, rivals are made worse off while consumers benefit. On the other hand, if a merger is is likely to result in collusion or a unilateral price increase, the rivals firms are made better off while consumers suffer.
I pointed to this graph of Sprint and Clearwire stock prices increasing dramatically upon announcement of the merger to illustrate the point that it appears rivals are doing quite well:
The WSJ reports the increases at 5.9% and 11.5%, respectively. In reaction to the WSJ and other stories highlighting this market reaction to the DOJ complaint, I asked what I think is an important set of questions:
How many of the statements in the DOJ complaint, press release and analysis are consistent with this market reaction? If the post-merger market would be less competitive than the status quo, as the DOJ complaint hypothesizes, why would the market reward Sprint and Clearwire for an increased likelihood of facing greater competition in the future?
A few of our always excellent commenters argued that the analysis above was either incomplete or incorrect. My claim was that the dramatic increase in stock market prices of Sprint and Clearwire were more consistent with a procompetitive merger than the theories in the DOJ complaint.
Commenters raised three important points and I appreciate their thoughtful responses. Continue reading →
On Forbes this morning, I argue that the Department of Justice’s effort to block the AT&T/T-Mobile merger signals a dangerous turn in antitrust enforcement.
While President Obama promised during his campaign to “reinvigorate” antitrust, few expected the agency would turn its attention with such laser-like precision on the technology sector, one of the few bright spots in the economy. But as Comcast, Google, Intel, Oracle and now AT&T can testify, the agency seems determined to make its mark on the digital economy. If only it had the slightest idea how that economy actually worked, and why it works so well. Continue reading →
[Cross posted at Truthonthemarket]
Basic economic theory underlies the conventional antitrust wisdom that if a merger makes the merging party a more effective competitor by lowering its costs, rivals facing this more effective competitor post-merger are made worse off, but consumers benefit. On the other hand, if a merger is likely to result in collusion or a unilateral price increase, the rival firm is made better off while consumers suffer. In the latter case — the one the DOJ complaint asserts we are experiencing with respect to the proposed AT&T merger — marketwide coordination or reduction of competition resulting in higher prices makes the non-merging rival better off.
Basic economic theory thus generates a set of clear testable implications for the DOJ’s theory of the transaction:
- events that the merger more likely should have a negative impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the likelihood the firm will face a more efficient, lower-cost rival in the future);
- events that make a merger less likely should have a positive impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the reduced likelihood that the merger will face the more efficient competitor in the future)
- by similar economic logic, events that make an anticompetitive merger more likely to occur should result in increase non-merging rivals’ stock prices (who will benefit from higher market prices) while events that make an anticompetitive merger less likely should decrease non-merging rivals’ stock prices.
The DOJ complaint clearly stakes out its position that the merger will be anticompetitive, and result in higher market prices. Paragraph 36 of the DOJ’s complaint focuses upon potential post-merger coordination:
The substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from four to three, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination. … Any anti competitive coordination at a national level would result in higher nationwide prices (or other nationwide harm) by the remaining national providers, Verizon, Sprint, and the merged entity. Such harm would affect consumers all across the nation, including those in rural areas with limited T-Mobile presence.
Continue reading →
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