(CNN)On Tuesday, Judge Richard Leon ruled that AT&T can purchase Time Warner, the parent company of CNN, without any conditions, finding that the $85 billion deal does not violate antitrust law. He also encouraged the government not to pursue an emergency stay of his ruling, arguing it would be unfair to both companies. It’s a move that corporate titans should cheer — and the rest of us should fear.
In this case, the government’s own expert estimated that the merger would allow AT&T to reduce the cost of DirecTV for customers by $352 million, which Judge Leon noted would be a benefit to customers. While the government argued that the merger would overall reduce competition and increase prices, Judge Leon didn’t buy it, finding that the evidence the government submitted was not credible.
The case will likely set a precedent for a lot of other proposed mergers, including those of Disney and Fox, and others outside the media industry, like CVS and Aetna.
This is because it’s the first time a so-called vertical merger — the combination of two companies that produce the same product but at different stages of the creation process — has been litigated to this degree in 50 years. The decision will likely also encourage Comcast to try to compete with Disney to buy Twentieth Century Fox.
As John Oliver explained in a piece on his show excoriating his own parent company, Time Warner, even before this merger and the others it may now set into motion, many American industries were oligopolies. For example, today just three rental car companies — Avis, Hertz and Enterprise — control 90% of the market. Four airlines — American, Delta, Southwest and United — control 83% of the market. There are four big banks: JP Morgan Chase & Co., Wells Fargo, Citi and Bank of America.
There are five major health insurance companies: Anthem, UnitedHealthcare, Cigna, Aetna and Blue Cross Blue Shield. Even when we die, we can’t escape this system: There are only three major casket companies. As the comedian argued, this is bad for us ordinary Americans, for three key reasons.
First, it can increase prices. Corporate executives claim that creating behemoth companies allows them to reduce their own costs by achieving greater economies of scale. In this case, AT&T and Time Warner argued the merger would allow them to compete with “FAANG”: Facebook, Apple, Amazon, Netflix and Google.
Indeed, despite Judge Leon’s ruling, the fact is that with less competition, there’s less incentive for companies to reduce costs. Oliver explained, for example, that in recent years, airlines have only added and then increased charges for baggage. In the AT&T-Time Warner case, the government argued that the merger would allow AT&T — which already owned DirecTV — to charge rival companies “hundreds of millions of dollars more per year for Time Warner’s networks.” Again, the judge ultimately found that there is no evidence that this vertical integration would affect content prices.
Second, with less competition, companies have less incentive to provide good customer service and better products — because consumers have few options about where to take our business if we’re unhappy. Oliver noted, for instance, that United CEO Oscar Munoz described the quarter in which a passenger was beat up on one of his planes, generating global outrage, as terrific nonetheless. Companies also are less motivated to innovate when there isn’t a lot of competition.
Third, when industries are dominated by such large companies, small and not-so-small businesses suffer because they can’t compete. It’s therefore no surprise that small business creation has been declining in America as mergers have been increasing. In 2016, entrepreneurship in the United States hit a 40-year low. In fact, economists say that the reason the United States hasn’t been experiencing more economic expansion or wage growth, despite falling unemployment and a booming stock market, is that fewer new businesses are being created.
If this merger were allowed to proceed, the government warned that it would allow AT&T to coordinate with Comcast-NBC Universal to prevent other streaming services from cropping up by not allowing startups to use content or limiting their use of content. The government noted that this would also, of course, hinder innovation. Judge Leon argued in his ruling that “Turner’s content is not literally ‘must have’ in the sense that distributors cannot effectively compete without it.” Possibly, but we all know that other content providers would find a higher hurdle to success if they were not able to offer highly valued content like that produced by HBO and CNN.
Meanwhile, existing companies earned record profits in 2017. This merger — and the others it stands to encourage — will only promote higher profits for business behemoths that are already depleting the oxygen for small business creation. And it’s not as though those record corporate profits have been trickling down much to ordinary people: wage growth has long been stagnant despite an American economy that is booming — for some. It seems that instead of rendering a decision that would help ordinary people, a judge today opted to help corporate giants.
It’s a decision that should concern Americans tremendously. The last thing we needed was a precedent that stands to help conglomerates and hurt consumers.