Regulation by Markets, Not by Bureaucrats

by Don Boudreaux on July 23, 2008

in Antitrust, Current Affairs, Regulation

The Competitive Enterprise Institute‘s Wayne Crews and GMU Econ grad student Ryan Young clearly explain why a merger of Sirius and XM poses no threat to consumers — but would make life more onerous for the merged-company’s competitors.  Here’s one of their key insights:

A big reason Sirius and XM want to merge is that they stand to save
hundreds of million dollars in costs (Oprah and Howard Stern are
expensive). Those savings will make satellite radio more competitive.

That competitive challenge is precisely why traditional over-the-air
broadcasters launched a fierce lobbying and advertising campaign
opposing the merger.

Why complain if a rival’s merger will result in that competitor
charging higher prices and degrading its services? A harmful merger
would be cheered. Competitors’ opposition reliably signifies that a
merger will benefit consumers.

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{ 11 comments }

Chris July 23, 2008 at 10:43 am

Even if you buy into the idea that antitrust law can have a positive effect (as I tend to), this case poses no real antitrust problems — there are plenty of substitutes for Satellite Radio: terrestial radio, in both traditional and "hi-def" forms, ipods, CD players, television, internet streaming, cellphone streaming, etc…. The fact that the music originates from a satellite is about as significant as the fact that Chevrolets originate in Detroit. There is no distinct market for "Satellite Radio," just as there is no distinct market for "Detroit-Built Cars."

SheetWise July 23, 2008 at 11:12 am

"A big reason Sirius and XM want to merge is that they stand to save hundreds of million dollars in costs (Oprah and Howard Stern are expensive). Those savings will make satellite radio more competitive."

I can understand that the merged carriers will save money by eliminating redundant services — but I expect that Oprah and Howard will remain expensive, even after a merger.

Jeff July 23, 2008 at 11:55 am

This is baloney. If you don't think satellite radio is offering something unique, why are millions of people willing to pay over $150.00 per year for it? Satellite radio provides dozens of channels of commercial-free, high-sound-quality, music. You can't legally get that from your IPOD without spending thousands of dollars buying music, and you can't get it from the few high-def radio stations. Mobile internet is very expensive, and there's not much free music there anyway.

A second issue is that the original 1997 FCC order establishing two satellite radio licenses specifically required that they be owned by separate parties. Whether you like it or not, that was the deal both companies agreed to. Now they perceive great value in combining. But why should they reap this value? If we're going to allow a monopoly, let's at least auction off the monopoly license, rather than just giving it away!

Keith July 23, 2008 at 12:15 pm

Quote from Jeff: "A second issue is that the original 1997 FCC order establishing two satellite radio licenses specifically required that they be owned by separate parties. Whether you like it or not, that was the deal both companies agreed to. Now they perceive great value in combining. But why should they reap this value? If we're going to allow a monopoly, let's at least auction off the monopoly license, rather than just giving it away!"

If the companies own both licenses before the merger, why wouldn't they own them after? Why does the Federal government feel they can plunder every business action in the country? (I understand why they think they can (i.e., the Federal government thinks it owns everything), but I'm curious why you do.)

chris July 23, 2008 at 12:21 pm

Jeff –

It's not a question of whether the offer something unique — every product is unique. The question is whether there are substitutes for it in the market. And there are substitutes, like ipods, streaming audio, etc… albeit not exact substitutes.

(Mobile internet, incidently, is ~$50/month, and I regularly stream radio margaritaville, also offered on Satellite, over my phone into my car stereo.)

They should reap the value of combining because their stockholders are the ones who have taken all the risk. Would you rather that one of them just went out of business? I fail to see how that benefits anybody.

Sam Grove July 23, 2008 at 1:43 pm

Eliminate the monopoly licensing as a condition for the merger.

Ray G July 23, 2008 at 10:06 pm

Isn't satellite radio pretty much the equivalent of cable tv to their industry?

vidyohs July 24, 2008 at 7:39 am

The electromagnetic spectrum is pretty much infinite, and with the assignment or use of frequency and power any number of radio stations can be served, many on the same frequency.

Satellites are damned expensive to boost into orbit, so the resources there are finite and thus only so many can be served. That phrase "so many" could be actually a very high number, I have been out of the field for awhile so I no longer am up to speed on the number of individual signals that can be carried via any microwave channel.

However, to me it makes sense that if competition is the holy grail then allowing the only two satcom radio stations to combine into one station, retain both of the independently issued licenses and all the channels regulated to satcom radio defeats the purpose. It does indeed establish a monoploly over that method of radio broadcast.

The product may be available through other more awkward means, but that does not rebut the claim that satcom radio would become a monopoly with the merger.

Chris July 24, 2008 at 2:22 pm

Vidyohs –

So, from an antitrust perspective, the first thing to do is to define "the market." You cannot have a monopoly if you are not the only player in "the market." If the market is "Satellite Radio," then you're right — they're the monopoly player.

But, in defining the market, the regulators look at close substitutes — if there is a reasonable second choice, then that choice is part of the market. So, for example, McDonald's has a monopoly on the Big Mac, but there's no reason that somebody couldn't buy a Whopper or the Wendy's equivalent instead. So, there is no distinct market for "Big Macs."

Radio is the same way — there's Satellite, FM, AM, HD, Streaming media over wireless internet, etc…. Saying "But there's only one Satellite provider" is approximately like complaining that somebody has a monopoly on AM radio stations.

vidyohs July 25, 2008 at 10:20 am

Good Money

Here is a good article and blurb about a book that describes how markets work efficiently and what happens when government steps in.

http://www.lewrockwell.com/mises-store/good-money.html

vidyohs July 25, 2008 at 10:36 am

Chris,

I guess I have to work on my writing.

I thought I made it clear that I recognize that the "product" offerred by satcom could be found everywhere and at anytime.

I believe I said this:
"However, to me it makes sense that if competition is the holy grail then allowing the only two satcom radio stations to combine into one station, retain both of the independently issued licenses and all the channels regulated to satcom radio defeats the purpose. It does indeed establish a monoploly over that method of radio broadcast."

which is begun with the word "if" in the first sentence and ends with the words "over that method of radio broadcast" in the last sentence.

I fully appreciate that music is available to me through other sources; however, to hear music on FM and AM I am going to hear commercials and other annoying things. If I am not mistaken the satcom stations offer music free of such annoying BS. This gives them a competitive edge in my book. I also believe that they offer channels pretty much tailored to a person's taste. Another competitive edge.

While monopolizing satcom it is true that XM & Sirius does not monopolize music or entertainment.

I can make CDs of any audio all day long free from my computer and so can you, my only cost is the investment in time in locating and overseeing the recording of audio that I want. However, in my lifestyle as it currently is I am increasing strapped for time to invest in that collection. So I might be a potential customer for satcom radio and if so, I want the best competitive price for it.

I thought the paragraph I quoted from my previous post was clear about me thoughts. And, my thoughts reflect the only position I have on the subject and that is limited to the common sense in that paragraph.

I don't think we have a quarrel, Chris, nor even a disagreement.

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