DOJ’s Hesse: Market Details Matter More than Quantitative Concentration Measures

September 20, 2016–Focusing merely on market concentration—as opposed to whether a firm or firms possess the ability to raise prices on their own or to prevent competitors from undercutting high prices—is a poor approach to antitrust enforcement, and the proposed merger of AT&T, Inc., and T-Mobile USA, Inc., is evidence of that, acting Assistant Attorney General–antitrust Renata Hesse said today in an address at the Global Antitrust Enforcement Symposium.

“In the complaint the DOJ filed in 2011 to block the proposed merger of AT&T and T-Mobile, we alleged that the most important competition for consumer cellular telephone services took place in local markets among providers that had assembled nationwide networks. Under this framework, the proposed merger between AT&T and T-Mobile threatened competition between two of the most important national competitors. By contrast, a merger among multiple non-overlapping regional networks might enhance competition by enabling a regional network to become more relevant to cellular customers by becoming a national network capable of competing with AT&T, Verizon, Sprint, and T-Mobile (the only competitors with national networks). But the measure employed in the Economist magazine study I mentioned would treat the merger among regional networks—just as it would an AT&T/T-Mobile merger—as an increase in concentration,” Ms. Hesse said, according to the text of her remarks as prepared for delivery.

However, she added, “I don’t mean to suggest that mergers between non-overlapping regional telecommunications networks can never present competitive concerns. When Comcast and Time Warner Cable proposed merging their non-overlapping cable and internet networks, we determined it was likely that their combination would dramatically increase Comcast’s power in nationwide markets in which content providers seek to distribute their shows. The moral of the this story, I suppose, is that there is no substitute for the hard-earned understanding that comes with the detailed work of market definition that antitrust enforcers do on a case-by-case basis involving a wide range of qualitative and quantitative evidence. Simple, quantitative measures used in industry concentration studies can be a useful way to bring attention to a potential problem, but they often shade over important details that make them difficult to use for antitrust enforcement or competition policy.”

Nor should market power that is the result of successful competition—absent anticompetitive practices—trigger antitrust action, Ms. Hesse said. She rejected the idea that reduced consumer welfare—higher prices and reduced output—absent evidence of reduced competition should trigger antitrust enforcement. She also cited the proposed Comcast-TWC deal in defending the 1963 Supreme Court “Philadelphia National Bank” ruling that created a presumption against mergers that would result in “a firm controlling an undue percentage share of the relevant market, and … in a significant increase in the concentration of firms in that market.”

“We could not predict precisely how Comcast might have used its new-found power; it could have increased prices broadly to providers of internet content or more specifically tried to harm its online video rivals. But the combination of such substantial competitors gave us (and the Federal Communications Commission) sufficient reason for concern—so much power could not be entrusted to one company,” she said. “[W]e best protect consumers (and others in the economy) by stopping anticompetitive practices, including mergers among substantial competitors, that experience and evidence—including company documents and customer testimony—suggest are likely to harm competition. If we required particularized and quantified proof of consumer harm in every case, we would simply make it more difficult to stop harmful conduct. That’s the lesson of Comcast/Time Warner Cable,” she added.

She rejected the argument that in cases involving claims of monopsony power, antitrust enforcers must show harm “not only to the input market but also to consumers downstream. … [T]here is nothing in the Sherman or Clayton Acts that would justify this limitation.” Ms. Hesse noted a trend toward more antitrust litigation and fewer administrative resolutions. “With the unfounded Chicago-School presumption that mergers often benefit competition, many have wanted to save mergers by trimming off their anticompetitive effects with minimal divestitures or with behavioral limitations. Antitrust enforcers at the Antitrust Division and the FTC [Federal Trade Commission] have become justifiably more skeptical about the promise of procompetitive benefits of mergers and of the likelihood that remedies solve the competitive concerns. As a result, we are more and more litigating to challenge mergers we see as fundamentally problematic and difficult, if not impossible, to fix,” she said.

“In total, the Division has been in civil trials for 75 days during the Obama Administration—as compared to only 27 days during the prior administration. Showing to the public that we are prepared to litigate has paid off: in this administration, a total of 40 mergers have been blocked by court order or wholly abandoned by the merging companies in the face of our investigation, a stark increase from 16 in the prior administration,” including cases in the cellphone, computer technology, online review, and cable and Internet service sectors, she noted.

She said that this shift from administrative settlements to litigation requires a shift from discussion at “the rarified level of economics tools such as HHIs, cross-price elasticities, and GUPPIs [gross upward pricing pressure index]” to “compelling and coherent stor[ies] about why certain business practices are harming competition and thereby participants in the economy.” —Lynn Stanton, lynn.stanton@wolterskluwer.com

Courtesy TRDaily