Category Archives: Antitrust

Justice Department Should Drop Apple Lawsuit

The Justice Department sued Apple and five major publishers this morning over their e-book pricing policies. Under their current contracts, a book’s publisher sets the price, and Apple gets 30 percent of the revenues. DoJ believes this is collusion. In a CEI press release, Wayne Crews and I explain why the lawsuit is a mistake, and should be dropped. Here’s Wayne:

“The complaint against Apple seems to be that collusion and smoke-filled rooms paved the way to a deal by which Apple gets a 30 percent cut of the publishers’ e-books sold for Apple devices, while other vendors are forbidden from selling below that pre-specified price. Such ordinary business deals, you see, involve a now-disparaged free market instrument called a ‘contract.’

“This arrangement appears to have been a normal response to Amazon’s deep discounts of e-books below physical book prices. DoJ’s solution is presumably to stop free enterprise, and allow Amazon to dominate e-books? Now, thanks to DoJ getting involved, competitors need not respond to to Apple and the publishers to better serve consumers and shareholders.”

And here’s my take:

“Given Amazon’s much larger share of the e-book market, Apple is hardly in a position to price its products uncompetitively. If consumers feel overcharged, they can easily give their business to Amazon or Barnes & Noble instead – possibly by using Apple’s own products!

“Five years ago, the e-book market didn’t even exist. Now it has a variety of competitors, each of whom are trying out new, different, and evolving business models. Consumers are much better positioned to reward good pricing models and punish bad ones than are Justice Department attorneys.

“This lawsuit is further evidence of how poorly smokestack-era antitrust policies fit our information age economy. E-book manufacturers and publishers are trying and discarding different business models at a fast rate as they figure out what works and what doesn’t. By the time the wheels of justice slowly creak to a verdict, Apple, Penguin, Simon & Schuster, and the other defendants will have long since moved on to some other pricing policy. The Justice Department should admit its mistake and drop the lawsuit.”

Wayne also has more to say in his latest Forbes column.

Google’s Antitrust Troubles

Holman Jenkins sums it up:

Google will be accused of having a “monopoly” on search, though its market share is only 65%, and it charges consumers nothing for its services.

CEI Podcast for September 1, 2011: The Blocked AT&T-T-Mobile Merger

Have a listen here.

The Department of Justice sued this week to stop the proposed AT&T-T-Mobile merger. Associate Director of Technology Studies Ryan Radia thinks this is a mistake. The evidence that the merger would make the wireless market less competitive is unconvincing. Nobody knows if the merger will succeed or not. Either way, consumer harm is unlikely.

The DOJ’s Antitrust Seers

Today, the Department of Justice sued to stop the proposed AT&T-T-Mobile merger. They claim to know in advance how the merger will affect the mobile market for years to come. It’s an example of F.A. Hayek’s fatal conceit. Of course, most people haven’t read Hayek. So over in the Daily Caller, I use a better known thinker to make the same point:

The philosopher Yogi Berra once said that “It’s tough to make predictions, especially about the future.” Let’s apply his lesson to the proposed $39 billion AT&T-T-Mobile merger…

Competitors are also surprisingly confident in their ability to predict the future. A Sprint spokeswoman said that “Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision … Today’s action will preserve American jobs, strengthen the American economy, and encourage innovation.”

This translates roughly to “We think the merger would make the market more competitive. We were scared that we’d have to work harder to innovate and cut costs to keep our customers happy. Whew.”

Most mergers fail. Nobody knows if a merged AT&T and T-Mobile would offer a better, cheaper product line. The only way to find out is trial and, often, error. The Justice Department’s astounding claim that it knows the merger’s effects in advance is either proof of its superior enlightenment, or else the height of hubris. I’m guessing the latter.

Read the whole thing here.

AT&T-T-Mobile Merger Delayed

A few months ago, the FCC said it would hand down a decision on whether to allow AT&T and T-Mobile to merge within 180 days. August 26 was day 83. The FCC decided to reset the clock to zero. So now it will be as long as another 6 months before the FCC announces its verdict.

There’s a comment to made here about regulatory uncertainty. There’s another one to make about the value of the FCC keeping its word. But instead I’ll concentrate on Sen. Al Franken’s recent remarks. “I am very suspicious of consolidation of power,” he told MinnPost.com.

“Big is bad” is an old argument. Age has not given it wisdom, however. Suppose a super-size phone company like a merged AT&T-T-Mobile is so big, clunky, and inefficient that it has to charge higher prices. What a golden opportunity for smaller, leaner competitors like Verizon and Sprint to swoop in and gain market share.

Now suppose instead that the merger gives AT&T and T-Mobile better economies of scale and a faster, more reliable network. Consumers flee their previous networks to join a better, cheaper one. This is hardly consumer harm – which after all, is the usual rationale for antitrust regulations.

Nobody knows if the proposed merger will work or not. But a company’s size doesn’t have much to do with whether a merger should be allowed. If a merger gives diseconomies of scale, consumers will punish it. If it improves service and prices, consumers will reward it.

Unlike the FCC, markets are impartial. Consumers are the proper arbiters of this proposed merger. Let them hand down the verdict.

Competitors: Stop That Merger!

The proposed AT&T/T-Mobile merger is drawing the usual antitrust scrutiny. Fearful competitors say the $39 billion deal will make the market less competitive. Or so they say. Over at the Daily Caller, I point out that actions speak louder than words:

[I]f Sprint is willing to devote resources to fighting the AT&T/T-Mobile merger, then it probably thinks the new post-merger company will be more competitive, not less. That cuts directly against their main argument – that the merger reduces competition.

Put yourself in Sprint’s shoes for a minute. If your competitors are making what you think is a foolish business decision, you’re not going to try to stop them. If anything, you’ll actively encourage them.

Instead, Sprint’s opposition is proof positive that it thinks the competition is about to get more formidable, not less.

Antitrust authorities, blind to that obvious fact, stand a real risk of stunting the competitive process. They should ignore competitors’ pleas for special government favors and let the merger succeed — or fail — on its own terms. Real competition happens in the market. Not in Washington.

Read the whole article here.

We Need Regulators, Not Interveners

The Constitution’s Commerce Clause gives Congress the power to regulate commerce. What does that mean, exactly? Over at the Daily Caller, my colleague Jacque Otto and I explain that regulation is about making commerce regular: no barriers to entry or trade, clear, understandable, and consistent rules, and so on.

Most of what people call regulation doesn’t have anything to with regular commerce. These kinds of rules are more accurately called interventions.

These interventions didn’t appear out of thin air, either:

One important reason regulators intervene is that many businesses want them to — businesses spend considerable effort and resources lobbying Washington to that end. For the most part, American companies compete on quality, price, or other consumer preferences. But on too many occasions, some companies try to use regulatory interventions to dispatch the competition. Sprint’s efforts to squander AT&T’s proposed purchase of T-Mobile are emblematic of this troubling trend.

Lessons abound for antitrust regulators — sorry, interveners.