Xm Radio

Journal of Competition Law & Economics, 4(3), 697–751 doi:10.1093/joclec/nhn019 Advance Access publication 20 June 2008

EV ALUATING MARKET POWER WITH TWO-SIDED DEMAND AND PREEMPTIVE OFFERS TO DISSIPATE MONOPOLY RENT: LESSONS FOR HIGH-TECHNOLOGY INDUSTRIES FROM THE ANTITRUST DIVISION’S APPROV OF THE AL XM –SIRIUS SATELLITE RADIO MERGER J. Gregory Sidak à & Hal J. Singer ÃÃ

ABSTRACT Can the standard merger analysis of the Department of Justice’s and Federal Trade Commission’s Horizontal Merger Guidelines accommodate mergers in high-technology industries? In its April 2007 report to Congress, the Antitrust Modernization Commission (AMC) answered that question in the affirmative. Still, some antitrust lawyers and economists advocate exceptions to the rules for particular transactions. In the proposed XM–Sirius merger, for example, proponents argue that the Merger Guidelines be relaxed to accommodate their transaction because satellite radio is a nascent, high-technology industry characterized by “dynamic demand.” We argue that the AMC correctly refrained from recommending high-tech exceptions for defining markets in merger proceedings. Merger proponents naturally seek to expand the relevant product market as much as possible. But if alternative products are included in the relevant market without a showing of significant cross-price elasticities—that is, without evidence of buyer substitution between the two products in response to a relative change in prices—then market definition is unbounded. The XM–Sirius merger also follows a recent trend of prosecutorial inaction in merger reviews. The Antitrust Division’s use of a higher standard for intervention than the incipiency standard

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Founder, Criterion Economics, L.L.C.; President, International Institute for Competition Law and Economics. E-mail: jgsidak@aol.com. President, Criterion Economics, L.L.C. E-mail: hal@criterioneconomics.com. We have served as economic consultants to the Consumer Coalition for...