Declaration of J. Gregory Sidak in Opposition to the Merger of Echostar Communications Corporation and Hughes Electronics Corporation (DirecTV)

70 Pages Posted: 22 Feb 2002 Last revised: 2 Nov 2009

Abstract

In this declaration, I evaluate the competitive consequences of EchoStar's proposed acquisition of Hughes Electronics, which markets its direct broadcast satellite service (DBS) service under the DirecTV brand name. Whether characterized as a merger to monopoly or as a merger to duopoly, the proposed merger would substantially injure competition. It would reduce competition in the sale of multichannel video programming distribution (MVPD) services to consumers by reducing the combined firm's incentive to compete on price and non-price terms.

In Part I of this declaration, I analyze the effect of the proposed merger on competition in the sale of multichannel video programming distribution services to consumers. I first present analysis of the pre-merger and post-merger concentration in the MVPD market. Using both Bertrand and Cournot models of oligopolistic interaction, as well as a model of perfect collusion, I then calculate the price increase and the loss in consumer welfare that would result from the proposed merger. My estimate of the annual welfare loss ranges from $691 million to $1.77 billion per year, depending on the characterization of the strategic pricing interaction among firms. Next, I show why the single national price that EchoStar and DirecTV propose, so as to mitigate the consumer harm from the proposed merger, would still result in a higher post-merger price. I present evidence that EchoStar's own antitrust analysis shows that the proposed merger would harm consumers. Finally, I critique arguments made by Professor Robert D. Willig, who has submitted expert economic testimony on behalf of EchoStar and DirecTV in support of their proposed merger.

In Part II, I analyze the effect of the proposed merger on one important aspect of non-price competition: the carriage of local broadcast stations. I show why the proposed merger would likely reduce the rate of growth in the number of DBS households with access to local broadcast stations.

In Part III, I review the claimed efficiencies from the proposed merger. I show that those efficiencies could be achieved without the merger. I also show the magnitude of the claimed reductions in marginal cost that would be necessary to offset the consumer harm that the proposed merger would cause.

I file this declaration in my individual capacity as a consultant to the National Association of Broadcasters and not on behalf of the American Enterprise Institute, which does not take institutional positions on specific regulatory, adjudicatory, or legislative proceedings.

JEL Classification: D4, D6, K00, K2, K21, K22, L1, L13, L2, L22, L5, L51, L9

Suggested Citation

Sidak, J. Gregory, Declaration of J. Gregory Sidak in Opposition to the Merger of Echostar Communications Corporation and Hughes Electronics Corporation (DirecTV). Available at SSRN: https://ssrn.com/abstract=301585 or http://dx.doi.org/10.2139/ssrn.301585

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

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