The AT&T/Time Warner Merger: How Judge Leon Garbled Professor Nash

Abstract

The US District Court in the AT&T/Time Warner vertical merger case has issued its opinion permitting the merger. At of this writing in August 2018, the Department of Justice (DOJ) has appealed to the DC Circuit and filed its brief, as have several Amici. I was disappointed that the DOJ was unable to prove its case to the satisfaction of Judge Leon, the trial judge. Notwithstanding the court’s confidence that the merger is procompetitive, I remain concerned that it will have anti- competitive effects, both on its own and following the subsequent vertical mergers in the TV industry, which this decision may will encourage and permit.

This commentary offers some reflections on Judge Leon’s opinion, not the future of the industry. It sets out a critical analysis of the court’s sceptical treatment of the Nash bargaining theory that formed the basis of the DOJ’s complaint and the economic errors he made. Judge Leon also rejected the empirical inputs that were used by DOJ’s expert economist, Professor Carl Shapiro, in his quantitative analysis, though this article will not analyse these issues. It will, however, raise questions about whether Judge Leon’s economic errors in analysing the bargaining model might have affected his interpretation of the evidence. The commentary also will offer some critical thoughts about the DOJ’s treatment of efficiencies from the elimination of double marginalization.

Keywords: antitrust, antitrust law, competition, antitrust enforcement