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.
antitrust
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.
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 six 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.
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 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.
The latest happenings in the world of regulation:
- A new Senate bill amending copyright law would make lip-synching to other people’s music a jailable offense. The legislation has bipartisan support.
- Two women were arrested in New York for eating donuts in a park while unaccompanied by minors. Strangely specific!
- A church in Charlotte, North Carolina, was fined $4,000 for violating the city’s tree-pruning regulations. The penalty is $100 per branch incorrectly cut.
- Another bill winding its way through the Senate would allow states to tax companies that have no physical presence inside their borders. I’ve written on similar state-level proposals before. It’s a bad idea.
- A new Mercatus Center study ranks the 50 states by economic freedom and regulatory burden. New York scored the worst. New Hampshire and South Dakota did best. You can read the study here.
- Wayne Crews has a good article in Forbes about why antitrust regulators should back off the proposed AT&T/T-Mobile merger.
- Los Angeles would like to pass regulations for what colors BB guns can be.
HHS is about to issue over 1,000 pages of new regulations stemming from last year’s health care bill. That’s not a huge surprise, considering the bill is about 2,000 pages long.
But these regulations all come from a six-page section covering accountable care organizations, or ACOs.
According to Politico, John Gorman, who runs a health care consulting firm, “expects a 1,000-page rule to come out on Thursday, March 31 — because he doesn’t think HHS will want to deal with releasing the regulations on April Fool’s Day.”
Back in 1998, the states settled their lawsuits against the big tobacco companies in a deal called the tobacco Master Settlement Agreement — the biggest legal settlement in history. In exchange for state attorneys general dropping their lawsuits against the four biggest tobacco companies, tobacco companies agreed to pay the states more than $240 billion over the first 30 years of the agreement, and billions more annually in perpetuity. In addition, trial lawyers received over $15 billion (not million, billion).
But there was a catch: to get that money, the states would have to pass laws protecting the big tobacco companies against competition from smaller, newer companies that had never lied about the dangers of smoking, much less been sued for it. That would enable the big tobacco companies to raise prices in unison and pass them on to smokers. Essentially, the states became Big Tobacco’s partner in the cigarette business.
Today, the European Commission opened a formal antitrust investigation into Google to probe allegations that the firm rigged its search engine to discriminate against rivals. This intervention in the online search market, however, will distort the market’s evolution, discourage competitors from innovating, and ultimately hurt consumers.
Google isn’t a monopoly now, but the more it tries to become one, the better it will be for us all. When capitalist enterprises strive to earn a bigger market share, rival firms are forced to respond by trying to improve their offerings. Even if Google is delivering biased search results, it is only paving the way for competitors to break into the search market.
The European Commission is wrong to assume that Google possesses monopoly power. Google accounts for just 6 percent of all dollars spent on advertising in Europe. And even loyal Google users regularly find websites through competing search engines like Bing or through social websites like Facebook and Twitter.
Before resorting to tired old competition laws, European policy makers should remember that the Internet economy is hardly understood by anybody—including by regulators. We are in terra incognita; no one knows how information markets will evolve. But one thing is for sure: Online search technology cannot evolve properly if it is improperly regulated. Why make risky investments in hopes of revolutionizing Internet markets if marvelous success means regulation and confiscation?
The real threat to consumers is not from successful high-tech firms like Google, but from overreaching government interventions into competitive market processes. As economists have documented in scholarly journals, antitrust intervention is especially problematic in the information age, because it severely underestimates the critical role of innovation in dynamic high-tech markets.
In the information age, ingenuity—not market power—is the key to success. America’s high-tech sector is strewn with former market leaders who were no match for the relentless forces of creative destruction. Rapid, unpredictable change is the hallmark of the modern digital economy. Google may be on top in many high-tech markets today, but it won’t stay there for long unless it keeps innovating and delivering a superior search product.
This post was co-authored by Ryan Radia and Wayne Crews.
Scores.org has a post suggesting that Google is a monopoly because its “tentacles tap into sizable market shares” referring to the search engine, map services, YouTube, Android, Gmail, and Chrome. The accusations rest on suggestive grievances and a superficial analysis of Google.
They protest that a search of “email” on Google shows Gmail first and then Yahoo! Mail, and that Google searches show only Google Maps, not MapQuest or Yahoo! Maps. This is like accusing a restaurant of being a monopoly because they don’t show their competitors’ menus.
Besides, are Google users harmed by first seeing Google Maps or Gmail? Seattle is still west of Chicago on Google Maps, and Gmail still sends and receives emails, just like Yahoo!. These matters are peripheral though; the true superficiality of monopoly accusations comes from mistaking Google users as Google’s customers.
Real customers pay. Google users don’t. Users are inputs in Google’s production process. Google’s true output is ad space. A monopoly, weakly defined, exists when a firm dominates the supply of an output. Google’s revenues do not come from their search engine, YouTube, Gmail, etc. directly. If Google is a monopoly it is because they restrict the supply of ad space to charge a higher price.
But to control the supply of ad space on the web, Google must draw as many users as possible. Absent of a government granted monopoly right, to maintain market superiority Google must provide superior services to users.
If Google actually is a monopoly, the result is that consumers are exposed to less advertising. The economic loss is that less advertising leads to less trade between users and advertisers who would have advertised on Google, but could not afford to because of the monopoly price.
The monopoly case for Google is weak and superficially generated. Considering their resounding success the alternative rationale for monopoly accusations against Google is far more plausible: their competitors are seeking to use the government to curtail it because they can’t keep up.
In this world there are two ways to supplant a superior competitor: (1) produce a more superior product or (2) get the government to knock them down a notch — by forcing them to compete “fairly.” In the former the consumers benefit from innovation, in the latter consumers lose because innovation is stifled. Lesson of the story is that if it ain’t broke, don’t fix it!
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