The Role of Antitrust in Protecting Competition, Innovation, and Consumers as the Digital Revolution Matures

From the abstract of The Role of Antitrust in Protecting Competition, Innovation, and Consumers as the Digital Revolution Matures: The Case against the Universal-EMI Merger and E-Book Price Fixing (June 2012) by Mark Cooper, Director of Research, Consumer Federation of America Fellow, Donald McGannon Communications Research Center, Fordham University and Jodie Griffin, Staff Attorney, Public Knowledge:

This paper presents a detailed analysis of the proposed merger between Universal Music Group (UMG) and EMI by applying the standards and methods outlined in the recently revised Department of Justice/Federal Trade Commission Merger Guidelines. It shows that the UMG‐EMI merger is “an unfair method of competition” that constitutes “an unreasonable restraint of trade” because it will “substantially lessen competition” and is “likely to enhance market power.” Simply put, the postmerger firm will have a strong incentive and increased ability to exercise market power, particularly in undermining, delaying, or distorting new digital distribution business models, in a market that has been a tight oligopoly for over a decade.

The merger creates a highly concentrated market by eliminating one of only four major record labels and results in an increase in concentration that is five times the level that the DOJ/FTC identify as a cause of concern. The recent history of anticompetitive, anti‐consumer conduct by this tight oligopoly and the role of EMI as a maverick in the digital era compound the anticompetitive effects of the merger and significantly increase the likelihood that the merger will not only result in higher prices but also undermine incipient competition.

Claims that piracy will prevent the abuse of market power are directly refuted by evidence on consumer purchasing behavior, estimates of elasticities of demand by academics, and marketing research conducted by the music industry. The analysis demonstrates that the industry has
chronically and grossly overestimated the role of copyright infringement in the development of digital distribution. Correcting this misrepresentation of the extent of infringement is necessary to ensure that policymakers have a proper understanding of the full benefits of digital technologies.

The strong parallels between the impact of the merger on the development of digital disintermediation in the music sector and the recent case brought by the Department of Justice against e‐book publishers highlight the economic efficiency and consumer benefit from the digital distribution of goods and services. The anticompetitive tactics of the dominant, incumbent, physical space firms remind us that these firms will stop at nothing to delay change and preserve their dominance. Antitrust authorities and others must use the full range of tools available to protect competition, innovation, and consumers and ensure that consumers and the economy enjoy the full benefits of the development of digital technologies.

[JH]