A Retrospective Analysis of the AT&T/Time Warner Merger

44 Pages Posted: 1 Oct 2021 Last revised: 17 Nov 2021

See all articles by Dennis W. Carlton

Dennis W. Carlton

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Georgi V. Giozov

Compass Lexecon

Mark A. Israel

Compass Lexecon

Allan Shampine

Compass Lexecon

Date Written: November 14, 2021

Abstract

The importance of merger retrospectives as a way to assess competition policy is well-recognized. Yet there have been few retrospectives – none that we are aware of for any recent merger – that examine the accuracy of the predictions made by economic models used in the antitrust investigation of the merger, despite the substantial lessons that can be learned from such studies. Moreover, there have been no such retrospectives of litigated cases that the government lost, likely because of the paucity of such cases.

In this article, we seek to fill these gaps by performing a retrospective of an important recent litigated merger in which the government lost and by focusing our attention on the accuracy of the predictions made by the economic model used by the government’s expert in the case. We focus on the 2018 AT&T/Time Warner merger, which was challenged by the U.S. Department of Justice (DOJ), litigated, and permitted to proceed by the court. To the extent data permit, we also discuss evidence related to the Comcast/NBCU merger, which involved the same theory of harm and was allowed to proceed with a remedy similar to the contractual commitment that AT&T/Time Warner unilaterally adopted to address the antitrust concerns.

The AT&T/Time Warner case is of particular interest for several reasons. First, it was the first vertical merger case litigated to conclusion by the DOJ in the last forty years, and, because it was litigated, the record contains specific detailed predictions that we can evaluate. Second, it used a vertical theory of raising rivals’ costs in a Nash bargaining framework. Such theories are becoming increasingly popular in antitrust debates. We evaluate the reasonableness of such theories together with the validity of the empirical predictions based on an economic model implementing such a theory.

Our conclusion is that the evidence at the time of trial showed the theory of harm to be weak, and the specific empirical predictions made by the government’s expert to be wrong. Post-merger evidence confirms that conclusion, as does new evidence from the earlier Comcast/NBCU merger.

Keywords: antitrust, vertical, retrospective

JEL Classification: L4, L42

Suggested Citation

Carlton, Dennis W. and Giozov, Georgi V. and Israel, Mark A. and Shampine, Allan, A Retrospective Analysis of the AT&T/Time Warner Merger (November 14, 2021). Available at SSRN: https://ssrn.com/abstract=3911492 or http://dx.doi.org/10.2139/ssrn.3911492

Dennis W. Carlton

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
312-322-0215 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Georgi V. Giozov

Compass Lexecon

United States

Mark A. Israel

Compass Lexecon ( email )

United States

Allan Shampine (Contact Author)

Compass Lexecon ( email )

United States

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