Monday, February 15, 2010

Richard Epstein on the Comcast-NBCU Merger

Last Friday, the Free State Foundation published a Perspectives from FSF Scholars on the proposed Comcast-NBCU merger by Richard Epstein, one of the nation's foremost law and economics scholars. In his Perspectives paper, Professor Epstein, Free State Foundation Distinguished Adjunct Senior Scholar, refutes the testimony on the merger of the Consumer Federation of America's Dr. Mark Cooper. Indeed, Professor Epstein states that Dr. Cooper has achieved a rare feat in that the "evidence that he presents against this proposed merger suffices to explain emphatically why it ought to be approved."

You should read Professor brief paper in its entirety. But here are a few excerpts:

  • "Dr. Cooper's analysis does not engage in this elementary form of analysis. The words "efficiency" and "benefit" do not appear anywhere in the analysis, so that the implicit baseline for his dubious judgment is that any cost of the merger is in and of itself to require its rejection by the applicable public authorities."

  • "Dr. Cooper has the rare skill to turn an economic virtue into a social vice. He writes that the two companies have in their respective roles of distributor and content provider, 'a competitive rivalry. For example, in providing complementary services, broadcasters and cable operators argue about the price, channel location and carriage of content.' Argue? What his odd choice of words shows us is that he has no explanation as to why the reduction in transaction costs should count as a social loss, when in fact it allows the provision of more services at lower prices. The gains from vertical integration are treated as though they create a social loss, which is even more mysterious because he does not bother to establish that either firm has any level of monopoly power to begin with."

  • "He then fortifies this analysis with one kind of alarmist prediction that makes sense only to those who are convinced that both companies with commit hari-kari after their linking up their fortunes. Thus he thinks that Comcast will carry only NBC content, which NBC will in turn only supply to Comcast. But why would either company wish to make its network weaker than it need be, by entering into actions of exclusion that hurt itself as much as any outsider? If the purchase of outside content allows Comcast to satisfy its customers' tastes, it will go for it. If selling content to other service providers allows NBC to gain more revenues, all the better. Both points are especially true for Comcast which does not have nationwide penetration in the cable market."

  • "[T]he last thing that any analyst should do is botch the antitrust analysis in any field that is as important as speech. Instead, the question is to ask why this combination might affect the market in speech. Here two points are relevant. The first is that the political speech market has never been healthier, because the coming of age of the web introduces more political content and lower cost of access than ever before. Entertainers may experience serious grief with the web because they are trying to sell content that is easily pirated. But political commentators are intent upon giving away content for free in the in the hope that every reader will forward a particular story to his or her entire list. Puhleeze forward!!"
  • "The situation is in reality exactly the opposite of what Dr. Cooper topsy-turvy analysis predicts. Efficiency is even more important when first amendment issues are at stake than when they are not. He is not able to perform a minor intellectual miracle of having an upside down antitrust analysis saved by topsy-turvy First Amendment analysis. His errors don't cancel each other out. They cumulate."

Anyone interested in following the Comcast-NBCU merger, especially those susceptible to falling for the wildly exaggerated claims of the so-called public interest groups, should read Professor Epstein's paper. At the same time, it would be useful to have in mind Professor Epstein's impressive bio.