Steven Pearlstein offers a few reasons why the government should block the proposed merger between Sirius and XM. Mostly, it’s boilerplate fear of big business and its assumed power to dominate people’s lives. I think I yawned once or twice while reading it. He wrote the perfect summation against his argument in his conclusion. It only takes a moment of looking beyond the words.
What we have here, folks, is a case of two money-losing companies locked in what has become ruinous competition, from which they hope to escape by merging. It may be that, given the economics of the business, there is room for only one to survive and prosper. But if satellite radio is such a “natural monopoly,” consumers will be better off if the companies are forced to duke it out until one prevails and the other dies. The antitrust laws were designed to foster competition, not to foreclose it by bailing out competitors that overpaid for talent, over-invested in plant and equipment or over-promised results to their investors.
How do we know consumers will be better off if the two companies continue to bloody each other? We can assume it, but it’s just an assumption. Sort of like the assumption that the FCC made that the public interest would be best served by allowing two, and only two, competitors to purchase a satellite radio license. How do we know what will be best in the future?
The explanation generally revolves around some imagined significant harm that will result from a monopoly. Only history doesn’t always show such harm. Would we have a viable, efficient economy with the same power if regulators had stopped steel or oil consolidation? Evidence suggests that those industries continually improved their manufacturing methods, increasing efficiency and lowering prices. We should not act in response to potential harm. If the merged company actually exhibits monopoly behavior, then intervention may be warranted. Until then, it’s wise to realize that the threat of intervention acts as an incentive against monopoly behavior.
More to the case at hand, perhaps it’s better to let one of the two surrender and preserve assets for productive use than to make them fight each other until one company is toast.
“consumers will be better off if the companies are forced to duke it out until one prevails and the other dies”
That statement has no basis, none whatsoever, in economic theory. Quite the opposite in fact.
Companies can’t respond to changing market environments instantaneously or costlessly. A restaurant that can raise prices because its competitor across the street went bankrupt still must pay for new menus reflecting the higher prices.
This is especially true for a subscription-based industry like satellite radio. The fact that one company goes under doesn’t void the contracts that the other still has with its existing customers (and its suppliers). It takes time to reap the rewards of greater market share — maybe too much time.