Abstract
This article highlights the economic analysis that underlay certain enforcement efforts of the Antitrust Division over the past year. The Division’s challenge of AT&T’s acquisition of Time Warner expressly incorporated bargaining theory into the theory of harm; this provided for a rich theoretical framework for evaluating the merger’s impact. The Division also reached a settlement with Atrium Health that prevented the large hospital network from imposing contractual restrictions that undercut health insurers’ efforts to create tiered networks and other plans that promote competition among providers.
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Notes
In particular, AT&T’s TV offerings consist of its DirecTV satellite business and its DTVNow vMVPD offering, which are available nationwide, and its U-verse product, which is available in areas where it has deployed extensive fiber.
As Netflix’s Chief Content Officer once said: “The goal is to become HBO faster than HBO can become us.” Haas (2013).
Future developments—e.g., additional buildout and 5G—have the potential to increase modestly the average number of Internet choices, although those developments are by-and-large being done by traditional companies such as AT&T and Verizon.
Bargaining models may also predict less harm than price-setting models. For instance, the VGUPPI is one potential tool for estimating the potential magnitude of harm from a vertical merger. Because it assumes that the upstream firm is free to use all of its newfound ability and incentive to increase price, however, in some cases it may predict potential price increases that are more than an order of magnitude larger than those that are predicted by a bargaining model.
In a price-setting model, for instance, the firm that sets the prices need only estimate the willingness to pay of the other side, and in an auction model each bidder is estimating only its own profits and chance of winning, not that of the auction holder.
Because this model does not attempt to capture whatever downstream price changes might happen because of upstream cost changes, the predicted harm is based on only the merged firm’s increased bargaining leverage—not on its desire to see its rivals increase their prices. Of course, the merged firm would directly benefit from its rivals’ charging higher prices, so the model potentially underestimated the negative effects of the merger.
In such a situation a price-discriminating monopolist might also offer fully efficient take-it-or-leave-it contracts.
See p. 13 of the complaint (available at https://www.justice.gov/atr/case-document/file/1012916/download).
A more rigorous mathematical treatment of this can be found in Appendix K of the first report of Professor Carl Shapiro: the Division’s expert at trial. A redacted version of that report is available at https://www.justice.gov/atr/case-document/file/1081336/download.
Ideally one might want to capture feedback effects from linking the two models together, but litigation did not permit the additional work necessary. Gee et al. (2019) addresses this issue.
Atrium Health was known at the time as Carolinas HealthCare System, but changed its name in February 2018, while litigation with the Department of Justice was ongoing. To avoid confusion, in this article we use the Atrium name even when referring to events that took place prior to the name change.
Chapter 288 of the 2010 Acts, Massachusetts Laws.
The California Attorney General filed a lawsuit against Sutter Health in March 2018, alleging that Sutter’s contracting practices—including steering restrictions—violate California’s antitrust law.
These figures are based on publicly available inpatient discharge data collected on behalf of the North Carolina Division of Health Service Regulation.
Farrell (2006) makes this point in a different context.
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Gee, E., Peters, C. & Wilder, J.M. The Year in Review: Economics at the Antitrust Division, 2018–2019. Rev Ind Organ 55, 537–550 (2019). https://doi.org/10.1007/s11151-019-09726-1
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DOI: https://doi.org/10.1007/s11151-019-09726-1