In light of AT&T's decision to raise the prices on DirecTV Now subscribers by $10/month, and to drop channels like MTV, Comedy Central, BET, and BBC America (while adding more AT&T-owned content to the bundle), it’s worth reviewing some of what the telecom giant claimed during the recent trial over its merger with Time Warner:
[C]onsumer prices will not go up.
Modern antitrust law recognizes that mergers between suppliers, such as Time Warner, and distributors, such as AT&T, almost always create efficiencies and synergies that lead to lower consumer prices and greater innovation.
Vertical integration raises antitrust concerns only in the rare case where the government can prove that the merger will hobble rivals’ ability to check the merged firm’s pricing conduct, thereby allowing the merged firm to raise its own prices above competitive levels.
[T]his merger is likely to enhance competition substantially, because it will enable the merged company to reduce prices.
The government raised the concern that a post-merger AT&T would increase prices on its customers from the beginning. In its initial complaint against the merger, it asserted that “As a result of the merger, the merged company would also have the power to raise its own prices relative to what it could have, had the merger not reduced competition from competing MVPDs,” and in the trial brief it argued that “[a]s a result of the merger, the merged company would also have the power to raise its own prices relative to what it could have, had the merger not reduced competition from competing MVPDs.”
During the trial the government focused (correctly) on how AT&T would charge higher content prices to its rivals, which would lead to higher prices for consumers of those rival services. AT&T argued that the Department of Justice “conceded” the argument about its direct retail prices, but this is plainly false. For instance, the DoJ argued in its trial brief that
The increased cost of Turner content to its rivals would place an umbrella over DirecTV and other AT&T distribution services. Faced with higher costs, rival MVPDs and Virtual MVPDs would increase their prices or downgrade their services, and would be less likely to engage in price cutting or other aggressive tactics. DirecTV would rest easier and would have room to raise its prices or to cut back on service.
Fully grasping these arguments requires a nuanced understanding of the mechanics of the video marketplace which, going by the district court opinion, Judge Richard Leon appears to have lacked.
AT&T should not have gotten off so easily. The effects of increased prices and reduced access to programming sold to rivals by AT&T the wholesaler may take years to work their way through the marketplace, as contracts expire, companies update their packages, and so on. But AT&T has shown remarkable haste not only in restructuring its new media properties but, as we have seen, raising prices and changing its bundles. AT&T won its case so presumably it's just reaping its rewards. But something may need to be fixed in antitrust when arguments about clear consumer harm that are presented at trial are breezily dismissed by the defendants as contrary to economic theory and ignored by the judge, but nevertheless come true so quickly after the trial is over.
The fact that the DoJ’s case against the merger has been shown to be right shows just how important it is for the government to keep bringing these cases. The antitrust agencies must keep challenging vertical mergers that may harm competition. They could use this example as a reason why judges need to take these theories more seriously. We need new Vertical Merger Guidelines to educate the courts on how markets really work, and how the dangers of vertical integration can play out. (The guidelines could even note how this case was incorrectly decided, using this immediate price increase as evidence.) In addition, legislation could make it easier for the government to meet a reasonable burden of proof for vertical challenges. Just look to people’s rising bills if you need proof that these changes are needed.