In August 2011, the U.S. Department of Justice filed a lawsuit in Federal District Court to stop the proposed merger of AT&T and T-Mobile. The action stands as perhaps the most ambitious antitrust action yet by the Obama Administration, according to The New York Times. The government’s complaint states that “unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger.”

Of course, it is not the first such suit filed against a technology or telecommunications company; corporations such as Microsoft, Google, Comcast, NBC, Oracle, Worldcom and Sprint have all been implicated in such actions over the past decade or so. This emerging area furnishes special challenges, particularly as they relate to how best for innovation and variety to flourish. The following papers give a sense of the deeper issues at play, the conflicting views and the ideas that scholars are debating in this area:

 

“Antitrust Review of the AT&T/T-Mobile Transaction”

Federal Communications Law Journal

Findings: “We find, under a rule of law approach, that the proposed acquisition is presumptively anticompetitive, and the merging parties in their public disclosures have failed to overcome this presumption. Next we find that under the Merger Guidelines, there is reason to believe that the transaction may result in higher prices to consumers under several different plausible theories. Finally, we turn to the question of possible remedies. We conclude that there is a high likelihood that divestitures will not solve the competitive problems, and make the case for enjoining the acquisition.”

 

“Antitrust in High-Tech Industries”

Review of Industrial Organization

Findings: “[T]he ultimate source of major changes in the competitive landscape appears to have been innovation and new technology — technology that was apparently not unleashed by the antitrust litigation. In each case, the government did not and probably could not see how technology would develop over time. Therefore, it was difficult for the government to design remedies that would accelerate competition when this competition developed from new technologies. Attempting to restructure the defendants so as to increase competition in markets that were vertically adjacent to those in which they enjoyed substantial market power was therefore a somewhat dubious undertaking because it deprived the firm and therefore consumers of the benefits of vertical integration.”

 

“Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation”

Working paper, American University — Washington College of Law

Findings: “Antitrust commentators and enforcers need not be defensive about the benefits of competition policy for innovation. Today’s antitrust institutions support innovation by targeting types of industries and practices where antitrust enforcement would enhance research and development incentives the most. It is time to move beyond the “on-the-one-hand Schumpeter, on-the-other-hand Arrow” debate, and to embrace antitrust as essential for fostering innovation. The benefits of antitrust rules and enforcement extend beyond lower prices, greater output and higher product quality; they also include increased innovation.”

 

” ‘High-Tech’ Antitrust: Incoherent, Misguided, Obsolete or None of the Above?”

Review of Industrial Organization

Findings: “My reluctance to endorse a Schumpeterian rejection of antitrust rests on grounds of policy design…. Antitrust does not exist in a vacuum. We have numerous policy tools to promote innovation; the list includes patent policy, prizes, research subsidies, investment tax credits, and direct public provision through scientific agencies such as the National Institutes of Health. On the other hand, antitrust is the only policy tool that we have to promote competition. Pulling that arrow leaves nothing in the quiver to address that still important policy goal. We should use all of the specific information that is available at the time in assessing an alleged anticompetitive merger or practice, including whether it would suppress or promote innovation. Nevertheless, with numerous other policy tools available, distorting or eliminating antitrust enforcement seems a poor way to promote innovation throughout an economy. It would arise only when competition is threatened, while the case for promoting innovation applies whether or not an industry happens to be the locus of a potential antitrust action.”

 

“Access and Information Remedies in High Tech Antitrust”

Working paper, Loyola University Chicago School of Law

Findings: “As antitrust becomes more complex so does its remedies. Patterns are beginning to emerge in the dizzying array of remedies in recent monopolization and merger cases. Like the cases themselves, the remedies increasingly focus on access to network industries and platform technologies. In an economy increasingly dominated by information and information technology, access is often dependant on seamless interoperability…. These issues will only increase in importance regardless of what agencies and courts ultimately decide with regard to the pending airline ticketing cases, continuing investigations, and allegations of market power and abuse of that power by such firms as Google, Apple, and the more distant horizon of the competitive significance, if any, of Facebook and the other key players in the social networking space. My best guess is that unless we return to a world of structural separation and structural remedies, these controversies will be the next iteration of how issues of access and information are shaping antitrust enforcement in the twenty-first century.”

 

“The Year in Review: Economics at the Antitrust Division, 2009-2010”

Review of Industrial Organization (for the U.S. Justice Department)

Findings: “In this review article we describe a number of these activities, focusing especially on ones that raised interesting or subtle economic issues. We discuss a number of specific merger investigations, including some — such as Ticketmaster/Live Nation and Baker Hughes/BJ Services — that culminated in consent decrees and substantial divestitures of assets, and one — Dean Foods/Foremost Dairies — that is the subject of ongoing litigation.”

 

“The Consequences of the U.S. DOJ’s antitrust Activities: A Macroeconomic Perspective”

Public Choice

Findings: “In principle, antitrust interventions could be disruptive in the short-run but, ultimately, effective in limiting non-competitive firm behavior over a longer time horizon, thus effecting a desirable tradeoff between short-run macroeconomic stability and long-run economic performance. However, we find no evidence of any long-run benefits following the initially (negative) disruptive effects of antitrust activities on productivity. The empirical results reported herein tend to undermine the case for an activist antitrust policy agenda. Innovations in antitrust law enforcement apparently do not constrain market power in the economy, but do hamper productivity growth, at least temporarily. Perhaps antitrust achieves its stated objectives in the small. Even if so, it does not seem to do so in the large. This could be because other firms are not effectively deterred by antitrust enforcements. Another interpretation is that, while firms may be constrained on some margins, that effect is offset by other adaptive behavior.”

 

Tags: technology, economy, law, research roundup, telecommunications, mobile tech