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|Erica E. Greulich specializes in empirical microeconomics. She has analyzed the antitrust implications of mergers and acquisitions in a variety of industries.|
The Department of Justice’s (DOJ’s) recent decision to close its investigation of the proposed XM-Sirius merger centered on issues of market definition and efficiencies. XM and Sirius are the only two companies licensed by the Federal Communications Commission (FCC) to provide satellite radio services in the United States. Nonetheless, DOJ found the merger, which is still pending before the FCC, is unlikely to lessen competition.
Critics describe the transaction as a merger to monopoly in the market for satellite radio providers. They argue that satellite radio’s extensive programming, national scale, superior sound, and freedom from commercials place it in its own market. Merger proponents argue that satellite radio competes with other music delivery services, such as terrestrial radio, MP3 players, podcasts and music-to-cell phone providers. DOJ agreed that these services would continue to restrain satellite radio prices to competitive levels and thus rejected the critics’ narrow definition of the market.
Some critics believe that DOJ should have blocked the XM-Sirius merger based on a unilateral effects theory. Such a theory would argue that XM and Sirius products are each other’s closest substitutes; hence the merger would eliminate competition and enable the firm to raise prices post-merger. The Federal Trade Commission (FTC) lost a recent challenge, based on a unilateral effects theory and a narrow market definition, to the Whole Foods-Wild Oats merger. Critics suggest that the Whole Foods decision made DOJ reluctant to argue a unilateral effects theory in the XM-Sirius merger and may continue to make DOJ wary of such theories in future mergers.
DOJ’s statement, however, implies a belief that a viable unilateral effects theory did not apply to this merger. XM and Sirius programs are not the closest substitutes for enough customers to make a post-merger price increase profitable. For example, for a customer interested in baseball games on XM, the closest substitute would likely be baseball games on terrestrial radio, not Sirius, which does not have baseball. DOJ also found that the merger likely would lead to significant efficiencies, and that the likelihood of significant technological change in the near future made anticompetitive effects from the merger even less likely.