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Friday, September 2, 2011

Anti-Trust Enforcement and Corporate Campaign Contributions

On August 31, 2011, “the [U.S.] Justice Department sued to block AT&T’s $39 billion takeover of T-Mobile USA, a merger that would create the nation’s largest mobile carrier. “We believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower-quality products for their mobile wireless services,” said James M. Cole, the deputy attorney general.” The New York Times goes on to claim that it is “arguably the most forceful antitrust move” by the Obama administration. To be sure, there were “few blockbuster mergers with the potential to reshape entire industries and affect large swaths of consumers.” However, one could cite the UAL merger with Continental and Comcast’s acquisition of NBC as evincing such combinations. It is more likely that the housing-induced recession made the administration reluctant to risk a major company looking for buyer going bankrupt. I would not be surprised if the vested interests of major mergers and acquisitions “played the bankruptcy card” as leverage with the Justice Department. Moreover, the political power of mega-corporations in the U.S. can be expected to have come into play.

To be sure, the U.S. Department of Justice is capable of flexing its political muscle. Nasdaq withdrew its $11 billion bid for NYSE Euronext, the parent company of the Big Board after government lawyers warned of legal action. However, conditioning Comcast’s purchase of NBC to the latter giving up control of Hulu, an on-line movie/television conduit, evinced a strange indifference to a much larger distribution company (Comcast) having a vested financial interest in some of the content (i.e., NBC programming).

The Justice Department looked the other way on a rather obvious conflict of interest potentially operating at the expense of the consumer (assuming people want to watch more than NBC programming on cable). Of course, cable is not the only distribution channel for television programming. Customers dissatisfied with Comcast’s vaunting of NBC programming (and even possibly restricting other content) could go to DirecTV, for example. However, conflating distribution and content seems a bit like the repeal of the Glass-Steagall law, which had prohibited the combination of commercial and investment banking (and brokerage) from 1933-1999. The law reflected the belief that structural or institutional conflicts of interest can and should be obviated even though it can be expected that not every instance of a commercial-investment firewall would succumb to the immediacy of the profit motive.

In short, the Obama administration could have gone further in its antitrust actions. While admittedly not as pro-business as the preceding administration, the Obama administration’s tacit acceptance of mega-corporations may translate into an insufficient defense of competition. It should not be forgotten that Goldman Sachs contributed $1 million to Obama’s election campaign in 2008. For the president to actively promote competitive markets would require him to bite the hands that have been feeding him. In other words, there is a conflict of interest involved in allowing corporations to make political contributions while the government officials are tasked with replacing oligarchies with competitive marketplaces.

Ben Protess and Michael J. De La Merced, “The Antitrust Battle Ahead,” New York Times, August 31, 2011. http://dealbook.nytimes.com/2011/08/31/the-justice-department-versus-deal-makers/?hp