Tuesday, March 25, 2008

Sirius To Wed XM

The Department of Justice has announced the banns for this marriage, which would result in many customers having the choice of exactly one satellite radio station:

The Justice Department gave approval on Monday to the merger of two rival radio networks, XM and Sirius, a marriage that would create a de facto monopoly in satellite services now used by more than 17 million subscribers.

The proposed $5 billion merger, which was announced more than a year ago, must still be approved by the Federal Communications Commission. The merger is opposed by consumer groups and broadcasters who say it will force up prices and reduce the programming now available from the two competing systems.

The Justice Department's antitrust division announced Monday that it approved the merger after determining that prices were not likely to rise, in part because of competition from other program sources, like high-definition radio as well as iPods and other MP3 players that can be connected to home or car audio systems. The deal, the agency said, was unlikely to hurt competition or consumers.

So let me get this straight: It would not hurt consumers if we only had one airline company, right? After all, people can take the train or the bus or drive their own cars to get from place x to place z. Ok, I guess.

And according to Mr. Barnett, who leads the Justice Department's antitrust division, this merger does not cause a monopoly! An antitrust division which doesn't see mergers as creating monopolies because there are nearby markets that consumers can go to! Wonders never cease under the Bush era. And Mr. Barnett doesn't believe that consumers react to increased prices, either:

He said the review showed that, because XM and Sirius equipment was not compatible, subscribers rarely shifted from one system to the other in their homes or cars; a switch could be expensive and time-consuming.

"Historically, once you choose one or the other of the audio services, you're not going to switch," he said. "A price switch is not going to cause you to jump to the other services."

Now this is fun. So the solution to a market where a duopoly (two firms competing only with each other) used various tricks to tie consumers to their products leads to ...what proposal by the guardians of the good markets? A merger!

It looks like FCC will approve the deal.

Note that I'm not saying there might be no good economic arguments for approving this merger and the resulting monopoly power in the satellite radio market. But the ones that have been presented here are not those good arguments. Because a monopoly always has more power to raise prices than a market with more than one firm in it.