AT&T and the Danger of ‘Vertical Integration’

[Commentary] No one should be surprised by the Justice Department’s attempt to block AT&T’s $85 billion bid to acquire Time Warner. Neither economic theory nor recent experience suggests there is anything novel about the antitrust theory underlying the government’s position. If one company exerts significant control over the means of accessing a particular market, and acquires another company that owns the stuff that goes over or through that distribution system, there is a real danger that independent producers of the same stuff—in this case, what is called “content”—will find life a lot more difficult, to the disadvantage of consumers. Imposing conditions on such a merger or constraints on the behavior of the resulting merged company will likely do little to improve marketplace competition. Combining AT&T’s distribution assets with Time Warner’s content would create a merged entity with a strong incentive to stifle competition from new content providers. Whether it would have the legal power to do so is now a question for the courts. The proposed merger comes as the traditional barriers to entry into the content segment of the entertainment industry are breaking down. Alternatives to cable transmission are emerging. Someday those alternatives may make ownership of a cable system by a content provider irrelevant. We’ll soon find out if that day has already arrived. Of course the courts could decide that merging AT&T and Time Warner poses no threat to competition. But if they do, it won’t be for lack of historical precedent or because current antitrust theory is too novel to apply. [Irwin Stelzer, director of economic policy studies at the Hudson Institute, has in the past consulted for News Corp and Google.]