Abstract

http://ssrn.com/abstract=1277777
 
 

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Evaluating Market Power with Two-Sided Demand and Preemptive Offers to Dissipate Monopoly Rent: Lessons for High-Technology Industries from the Antitrust Division's Approval of the XM-Sirius Satellite Radio Merger


Gregory Sidak


Tilburg Law & Economics Center (TILEC), Tilburg University; Criterion Economics, L.L.C.

Hal J. Singer


Economists Incorporated

September 2008

Journal of Competition Law and Economics, Vol. 4, Issue 3, pp. 697-751, 2008

Abstract:     
Can the standard merger analysis of the Department of Justice's and Federal Trade Commission's Horizontal Merger Guidelines accommodate mergers in high-technology industries? In its April 2007 report to Congress, the Antitrust Modernization Commission (AMC) answered that question in the affirmative. Still, some antitrust lawyers and economists advocate exceptions to the rules for particular transactions. In the proposed XM-Sirius merger, for example, proponents argue that the Merger Guidelines be relaxed to accommodate their transaction because satellite radio is a nascent, high-technology industry characterized by “dynamic demand.” We argue that the AMC correctly refrained from recommending high-tech exceptions for defining markets in merger proceedings. Merger proponents naturally seek to expand the relevant product market as much as possible. But if alternative products are included in the relevant market without a showing of significant cross-price elasticities-that is, without evidence of buyer substitution between the two products in response to a relative change in prices-then market definition is unbounded. The XM-Sirius merger also follows a recent trend of prosecutorial inaction in merger reviews. The Antitrust Division's use of a higher standard for intervention than the incipiency standard in Section 7 of the Clayton Act increases the risk of false negatives. Finally, the XM-Sirius merger exemplifies the use of preemptive offers of merger conditions by the merger parties to gain political favor and to allocate postmerger rents to influential third-party intervenors. The most significant preemptive concessions were XM's and Sirius's offer to freeze the monthly subscription price at the premerger monthly rate of $12.95 and to offer a variety of new tiered program packages that XM and Sirius characterized as “à-la-carte.” These offers presumably were intended to neutralize the traditional antitrust concerns that a merger among direct competitors leads to higher prices and to win the support of certain vital constituencies. To the contrary, we argue that the offer to freeze prices could reduce welfare and that the Federal Communications Commission and the Department of Justice lack the authority to create a rate-regulated monopoly for satellite radio. Furthermore, because the “à-la-carte” offering would not hold constant other nonprice factors, consumer surplus could fall.

Accepted Paper Series


Not Available For Download

Date posted: October 8, 2008  

Suggested Citation

Sidak, Gregory and Singer, Hal J., Evaluating Market Power with Two-Sided Demand and Preemptive Offers to Dissipate Monopoly Rent: Lessons for High-Technology Industries from the Antitrust Division's Approval of the XM-Sirius Satellite Radio Merger (September 2008). Journal of Competition Law and Economics, Vol. 4, Issue 3, pp. 697-751, 2008. Available at SSRN: http://ssrn.com/abstract=1277777 or http://dx.doi.org/nhn019

Contact Information

J. Gregory Sidak (Contact Author)
Tilburg Law & Economics Center (TILEC), Tilburg University ( email )
Tilburg, 5000 LE
Netherlands
Criterion Economics, L.L.C. ( email )
1614 20th Street, N.W.
Washington, DC 20009
United States
(202) 518-5121 (Phone)
HOME PAGE: http://www.criterioneconomics.com
Hal J. Singer
Economists Incorporated ( email )
2121 K Street N.W.
Suite 1100
Washington, DC 20037
United States
202-747-3520 (Phone)
HOME PAGE: http://www.ei.com/viewprofessional.php?id=71
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