Antitrust enforcement is the bulwark to a competitive market. Unfortunately, over the past several years, there has been very little merger enforcement exerted by the Department of Justice. In fact, the DOJ has not tried a merger case for over five years.
At this point, the DOJ is facing its first significant antitrust test: will it permit the Ticketmaster/Live Nation merger with some modest restructuring, or will it go to court to block the merger?
Accepting a half-a-loaf remedy on this case would be a mistake, and the current Assistant Attorney General for Antitrust Christine Varney knows that to be true. In the 1990s as a young commissioner of the Federal Trade Commission, Varney dealt with the proposed merger of Staples and Office Depot, two of the three office supply superstores. In response to FTC concerns, Staples offered to divest more than 60 superstores to the third superstore chain, OfficeMax. Four of the five Commissioners deadlocked 2-2 on whether to accept the settlement. Commissioner Varney cast the deciding vote to reject the settlement and go to court.
The decision was the right one by any measure. The FTC went to court and in a thoughtful decision that established a vital precedent the court enjoined the merger. The FTC's role as a merger enforcer was revitalized and they won several important merger trials over the next several years. The decision has been relied on by numerous other courts. Most importantly, consumers have received the benefits of aggressive competition between three superstore chains for the past 12 years, resulting in lower prices, increased numbers of stores, and improved services.
Competition works in lowering prices and providing choices, a critical lesson for the ticketing market, which has long been dominated by the Ticketmaster monopoly. Live Nation was the first company to threaten Ticketmaster's dominance when they announced they would break into the ticketing business early last year. However, monopolists, by their very definition, dislike competition, and when faced with a significant rival that it cannot drive from the market, Ticketmaster is trying to buy it out. Preventing dominant firms from buying out competitors is why our nation's antitrust laws exist in the first place. Now they must be enforced. Allowing Ticketmaster to acquire Live Nation would combine the nation's monopoly ticket provider with its only significant rival and create a behemoth of a corporation that dominates every corner of the market -- selling tickets, managing performers, ownership of amphitheaters and management of clubs and theaters, and control of ticket resales.
The merger will clearly led to higher ticket prices and less service. The impact of the merger on new services will also be substantial. In the future there may be a variety of services in the entertainment business that new firms may offer. If Ticketmaster and Live Nation join forces, they will have the leverage to prevent other firms from entering into or surviving in new product spaces that need services from Ticketmaster or Live Nation.
And as Varney saw in the Staples/Office Depot case, divestitures do not necessarily lead to less monopolistic control. For instance, there have been reports that Ticketmaster may divest Paciolan, the ticketing computer system that Ticketmaster owns and that can be used by other sites, including venues. To permit the merger based on this so-called divestiture, the DoJ would have to conclude that with Paciolan, Comcast (the reported recipient) would have the incentive and ability to fully restore competition. Comcast has a minor presence in ticketing and the idea that it would disrupt Ticketmaster's reinforced monopoly is simply fanciful.
There is good reason why more than 50 Congressmen, led by U.S. Rep. Bill Pascrell (D-N.J.), and a vast number of consumer groups have come out against the merger. The new entity would be an overwhelming force in the entertainment industry and prevent consumers from enjoying the benefits of true competition. With this merger, there will be no air supply left for consumers or competitors alike.
AAG Varney should remember the lesson of Staples/Office Depot. Sometimes a half-a-loaf is not enough, especially where consumers are involved. There is fast-growing bi-partisan support in the Congress, broad support from consumer groups, and, from almost any analysis of Internet chatter, widespread support across the country for blocking this merger. The DOJ should listen up and do just that.
David Balto is a senior fellow at the Center for American Progress and a former policy director of the Federal Trade Commission.
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