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 The idea is monopsony power, the mirror image of the better-known
monopoly power but a concept that is just as old.
A monopoly is one seller with many buyers, while a monopsony
(pronounced muh-NOP-suh-nee) is one buyer with many sellers. A
textbook example is a milk processor that is the only option for
dairy farmers to sell to, and that then forces farmers to sell for
less.
The U.S. Justice Department's Antitrust Division is all but certain
to examine the potential monopsony power, or buying power, that a
combined Comcast and Time Warner Cable would have over media
companies that provide TV programming, according to lawyers with
expertise in antitrust law.
The combined company would have a near 30 percent share of the U.S.
pay television market, Comcast has said, as well as be a major
provider of broadband Internet access.
"It's a potential concern," said Maurice Stucke, a former Justice
Department antitrust lawyer who is now a University of Tennessee
professor and of counsel at the law firm GeyerGorey.
"It's not as much in the limelight as monopoly, but monopsony has
always been part of the antitrust laws," he said.
Monopsony concerns tend to have a lower profile because they may not
directly affect consumers. The harm to the market comes if suppliers
go out of business, which reduces society's overall output, or if
suppliers have less money to invest in new technology, equipment and
expansion.
Consumers may even benefit from monopsony if a company cuts its
prices, although the savings are not always passed along. In the
case of Comcast-Time Warner Cable, it could be argued that a more
powerful pay TV operator may be able to lower fees if it can
negotiate lower programming costs with the TV studios.
"It's a monopsony problem when it threatens to decrease output. If
all it does is reduce cost, it's a good thing," said Herbert
Hovenkamp, a University of Iowa law professor.
He added: "Monopsony is one of those things that is frequently
claimed and rarely proven."
GETTING BETTER DEALS
Princeton University economist Paul Krugman criticized the proposed
Comcast-Time Warner Cable merger in a February 15 post on his New
York Times blog titled, "Monopsony Begets Monopoly, And Vice Versa."
Comcast "is able to extract far more favorable deals from content
providers than smaller rivals," Krugman wrote. "And if it's allowed
to acquire (Time Warner Cable), it will be even more advantaged."
Others say it is hard to see how a media conglomerate like Walt
Disney Co, or even smaller content providers, would feel much pain
from slightly lower payments or from one fewer way to distribute
shows.
"Given the rapidly increasing number of avenues for distributing
content, I think that's far-fetched," said Jeffrey Eisenach, an
economic consultant who has done work for Comcast in the past but is
not working on the merger.
Asked about the possibility of a monopsony challenge, a spokeswoman
for Comcast pointed to a 2009 federal appeals court ruling that said
there was "overwhelming evidence" that the communications
marketplace was competitive. The ruling threw out a regulation
designed to limit market share among companies such as Comcast to 30
percent.
"Today there are even more types of video competition than when the
court threw out the case," Comcast spokeswoman Sena Fitzmaurice
wrote in an email.
She said TV networks can distribute their programs to consumers in
many ways, such as DirecTV's satellite service or Verizon's FiOS
video service. There are also video streaming sites, such as Netflix
and Hulu.
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Antitrust experts said Comcast and Time Warner Cable may be able to
address some government concerns by extending the terms of a
settlement that Comcast signed with the Justice Department in 2011
to secure approval to buy NBC Universal. For instance, Comcast
promised to make programming, such as cable news channel CNBC,
available to competing pay-TV companies.
ANTITRUST STANDARD
Review of the Comcast-Time Warner Cable deal is expected to take
several months. Either the Justice Department or the Federal Trade
Commission will examine it for antitrust compliance, while the
Federal Communications Commission will rule on whether it is in the
public interest.
The antitrust standard is whether the deal would substantially
lessen competition. If government lawyers believe it would, they
could sue in federal court. Sometimes even the threat of a suit is
enough to scuttle a deal.
Monopsony has been getting more attention within the Justice
Department. A senior staff economist, Gregory Werden, wrote a paper
in 2007 arguing that the original U.S. antitrust law, the Sherman
Antitrust Act of 1890, was designed to protect sellers as well as
end-user consumers.
In 2010, the department drew attention to monopsony concerns when it
released revised guidelines for corporations considering mergers.
The guidelines replaced a document from 1997 and included an
expanded discussion of monopsony.
When suppliers do not have "numerous attractive outlets for their
goods or services," the two agencies "may conclude that the merger
of competing buyers is likely to lessen competition in a manner
harmful to sellers," the guidelines said.
Wal-Mart Stores Inc has routinely faced criticism that it has
monopsony power because of its ability to drive down the prices it
pays suppliers. But the retail giant's defenders say there is little
evidence that suppliers are hurt, and Wal-Mart's low prices for
customers also make it popular.
Monopsony is most often an issue in agriculture.
In 1999, the Justice Department feared that Cargill Inc's plan to
acquire part of Continental Grain Co would concentrate the market
for buying corn, soybeans and wheat, and it approved the acquisition
only after the global commodities trader agreed to sell off grain
elevators.
The Justice Department sued in 2008 to block the combination of two
of the top four U.S. beef packers, JBS SA and National Beef Packing
Co, saying it would have hurt both cattle suppliers and consumers.
The companies abandoned the deal four months later.
In the context of the pay TV market, a key question is how a channel
would fare if it were not carried by a merged Comcast-Time Warner
Cable.
"If you're told you can't reach 30 percent of a potential market,
how significant is that for a competitor who wants to produce?
That's a technical question," said Peter Carstensen, a University of
Wisconsin law professor.
"You've got to put the data together. You've got to come up with a
plausible story, with witnesses, with the econometrics, to make that
case," he said, "and whether that can be done convincingly, I don't
know."
(Additional reporting by Diane Bartz; editing by Howard Goller and Tiffany Wu)
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