article that I decided to cover for my term paper, AT&T Warner Antitrust
Trial Set for March (2017), by Diane Bartz covers the concepts of perfect
competition and imperfect completion, such as monopolies. AT&T wants to
merge with Time Warner in a merger that could potentially, according the U.S.
Justice department harm consumers through higher prices, limited alternatives,
and through hefty fees for competitors to purchase content.
Warner in a bid to move the merger along also offered a 7-year deal to not go
“dark” in any disputes that may arise between the distributors and the
programmers within that time frame. According to the article similar deals have
been attempted with similar fixes suggested, but the deals (Staples purchasing
Office Depot or Aetna buying Humana) later were all nixed. In this case both
companies do not compete with each other, making it a vertical merger. An
antitrust suing a vertical merger is rare and will be closely watched, in this
case the potential merger of a company trying to buy the supplier, because
traditionally antitrust agencies go after mergers that remove other competitors
in an already tight market. This battle is already headed to court making this
a full blown legal battle that will have to be settled by a judge. The argument
could be made that that if both of these companies combine that it could harm the
market, causing prices for competitors to soar if they wanted to add Turner
channels, if they are not AT&T. As result AT&T could be the only one to
offer certain channels that consumers may want, limiting the competitors chance
to compete against this conglomerate. AT&T
rebuttal relies heavily on tradition and past vertical mergers being allowed.
AT&T also argues that this merger will actually induce more competition and
uses Netflix and Amazon as an example to show the very competitive market.
policy recommendation is to not allow the deal go through is clearly supported
by The United States Department of Justice Non-horizontal merger guidelines. Additionally,
according to the class readings, “in the case of monopoly, one firm produces
all of the output in a market; since a monopoly faces no competition, it can
charge any prices that it wishes” (UMUC, 2017). If this merger was to go through allowing, “AT&T’s ability to preferentially distribute
proprietary Time Warner content would foreclose competition throughout the
entire media content supply chain, allowing the company to extract greater
licensing fees for Time Warner content from AT’s (few) distribution
competitors (Baker 2011, 40; Mclaughlin and Shields 2016), this would discourage
up in coming content curators who could not compete, allowing for a future
monopoly role for AT&T.
The Image below shows how a
monopolist would maximize profits by setting output where MR=MC. In monopoly
market prices are increased and the output is decreased, but in a competitive
market we see the output increase and the price decrease. This graph is
representative of what the antitrust government is concerned with happening
with this merger. The cost of content and consumer fees goes up.