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Regulators Should Weigh Expected Benefits of Merger against Risk of Anticompetitive Harms

Regulators Should Weigh Expected Benefits of Merger against Risk of Anticompetitive Harms

Wallsten Files Comments with FCC on Comcast/Time Warner Cable Merger

Contact: Amy Smorodin
(202) 828-4405

August 25, 2014 – Scott Wallsten, TPI Vice President for Research and Senior Fellow has filed the previously released paper, “An Economic Analysis of the Proposed Comcast/Time Warner Cable Merger” with the Federal Communications Commission in response to their request for comments to inform the examination of the proposed merger.

In the paper, Wallsten explains that, “Despite the controversy surrounding the proposed merger of Comcast and Time Warner Cable, “the question regulators and antitrust authorities must answer is the same as it is for any merger.” Regulators must determine if “expected benefits that flow from increased efficiencies outweigh the chances that the merger could increase the incentive and ability of the combined firm to behave in anticompetitive behavior and the magnitude of those effects.”

Wallsten determines the merger would potentially yield benefits to business customers because the increased area the merged companies would cover would make it less costly to connect customers with multiple office locations.

The benefits for residential customers would be dependent on such factors as the schedule for infrastructure upgrades and how much current TWC consumers value the expanded video-on-demand library and faster broadband connection speeds. It is difficult to predict the effect on innovation, because although fewer firms in an industry “may reduce the number of innovative paths explored,” larger firms could have stronger incentives to innovate if scale allows higher returns to investment. In addition, it is not clear how much increased revenues expected from cost efficiency will affect prices for the consumer.

Wallsten also addresses possible harms voiced by some opponents that “the merged company’s increased scale and scope will allow it to discriminate unfairly in both video and broadband.” Wallsten finds no realistic theory why larger distributors would receive better carriage deals for content than smaller distributors. “The primary reason for the theoretical ambiguity is that while the content provider needs access to subscriber, the distributor needs content to distribute,” he explains. Regardless, a better negotiating position does not necessarily mean harm for consumers. “Given rapidly increasing programming costs, a reduction in the rate of increase due to an improved negotiating position may benefit, rather than harm, consumers if it has any effect at all.”

Wallsten warns regulators and antitrust authorities against simply determining if the merged company has the incentive and ability to block or degrade online content. “The question is whether the merger increases the incentive and ability to do so and, if so, does the increase pose an anticompetitive threat.”

An Economic Analysis of the Proposed Comcast/Time Warner Cable Merger,” is available on the TPI website.

The Technology Policy Institute

The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/.

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