Drunk Argument Question

[gottimd]

I was drinking with a bunch of people and the discussion somehow ended up on the topic of monopolies, no idea why. If Sirius Radio bought XM radio, would that be considered a monopoly, why or why not?

My point was that it would be a monopoly since there would be no other Satellite radio to choose from. They said I was wrong, and that people had the option not to choose satelitte radio, therefore, if a buyout/merge happened, it wouldn't be a monopoly. I mentioned the phone companies, the current company I work for, etc and people looked at me like I had 29 heads. It actually pissed me off a little, that they were very strong on the opinion that I had no idea what I was talking about.

Am I wrong? If these two merged/bought out eachother, would this by "standards" be considered a monopoly, or as my drunken counterpointers would say that since satellite radio isn't needed, then it wouldn't be a monopoly? The only thing I thought of to counter was if HBO bought Cinemax and you, as the consumer were forced to either buy HBO or not have premium cable, that would be a monopoly, as they noted, a consumer is not obligated to buy premium cable TV, but it would still be a monopoly.

Legally, I assume there is a lot of grey matter with this, but without all of that crap, if XM and Sirius were to merge/buyout one another,would that be considered a monopoly?

[QuikSand]

A true monopoly really exists when there is only one provider of a good or service, and there is no good substitute for what they sell.

In practice, our real worry (as a society) is broader than that - we worry about any over-consolidating of any marketplace, even things that fall far short of a true monopoly. When the regulators look at such things, they are looking for the potential for the resulting entity to control so much of a market as to begin to wield monopoly powers.

My best guess is that is Sirius and XM proposed to merge, there would be serious scrutiny for the reasons you suggest. It might take some time for anyone else to gain any kind of foothold in their market, and you could at least argue that their service is substantially separable from anything else.

I don't think there's a slam dunk answer to your question... and I'd disagree with anyone who claimed that your argument was empty.

[kcchief19]

I would say that it would technically not be a monopoly, but not quite for the reasons that were given. I would say it isn't a monopoly because there substitute goods available, namely Internet radio. Granted, there are differences in the delivery format, but I don't think it's comparable to other distinct monopolies like local cable monopolies or AT&T back in the day.

However, the line is gray enough to me that you could make a convincing argument that it is a monopoly, which then raises the question of whether it is legal or not. I think it would be, but that's another discussion.

[Joe]

not a monopoly.

[Toddzilla]

I try and equate this with satellite TV - what if Dish Network were to buy DirecTV?

I think that would certainly qualify as a monopoly, but it may not *technically* since consumers have the choice of cable television and regualr broadcast TV.

I think the fact that satellite TV has so many subscribers, that by eliminating all competition (in the merger above) you would create a monopoly, but I don't think the popularity of the technology should have anything to do with it.

[Jonathan Ezarik]

I think HBO does own Cinemax.

[sabotai]

I think HBO does own Cinemax.

They do. Showtime owns a bunch of premium channels too. It's essentially HBO vs. Showtime.

[JonInMiddleGA]

This actually came up just a couple of weeks ago, when Sirius CEO Mel Karmazin mentioned at a conference that he would "interested in buying XM Satellite Radio at the right price".

And in almost the same breath, he said "there would definitely be the regulatory issue".

So yeah, I'd say there would be (pardon the pun) serious issues raised by a merger & that approval of any hypothetical deal would be iffy at best.

edit to add a source link: http://www.radioink.com/HeadlineEntry.asp?hid=134108&pt=todaysnews

edit to add: Sounds to me like you've got a better grasp of the situation than your drinking buddies.

[ISiddiqui]

Legally, I assume there is a lot of grey matter with this, but without all of that crap, if XM and Sirius were to merge/buyout one another,would that be considered a monopoly?

Probably not. The trick is defining the market and usually the courts and the government have been loath to define the market narrowly. If the market is defined as "satellite radio" then it would be, but I'd bet that regulatory agencies and courts define the market as "radio".

Now that doesn't mean that the regulatory agencies wouldn't want some changes to make sure there are no problems in competition in sattelite radio, even though they wouldn't refer to it as a monopoly.

[Honolulu_Blue]

Probably not. The trick is defining the market and usually the courts and the government have been loath to define the market narrowly. If the market is defined as "satellite radio" then it would be, but I'd bet that regulatory agencies and courts define the market as "radio".

Now that doesn't mean that the regulatory agencies wouldn't want some changes to make sure there are no problems in competition in sattelite radio, even though they wouldn't refer to it as a monopoly.

This is pretty much the right of it. It all comes down to market definition. If the market includes both satellite radio and terrestrial radio then it wouldn't create a monopoly. There is some precedent out there that would lead one to beleive that the market would include both. For example, when the DOJ sued to block the DirecTV and Dish Network, the "relevant product market" was defined as "multichannel video programming distribution" which included both satellite and cable (though not traditional over-the-air-waves TV). The DOJ sued to block the merger claiming that DirecTV and Dish Network would have a monopoly in this market in those areas where cable was not available.

I don't know enough about radio to know if such areas exist where satellite radio is the only option.

Without knowing much of anything about the markets, I would think the merger could happen (hence no monopoly), but there would certainly be a regulatory review to figure what sort of impact there would be. It seems that the easy answer for those defending the merger would be to say that if the new company raised prices consumers would have the easy alternative of simply switching to free terrestrial radio.

Sorry for the rambling response, but as an antitrust attorney, I rarely get an opportunity to talk "shop" all that often, which is fine, because, let's be honest, I'd much prefer discussing hockey, video games, comics, movies, etc.

[gottimd]

Thanks all for helping clear that up. Although I liked quiks/JIMGA answers the best, mostly because they were in line with what I was thinking, but the last two responses ISiddiqui and Honolulu_Blue were very helpful as well.

I think my major point to all of them (people I was drinking with), is that it would "raise a flag" on the monopoly scope of the government, but they said I was crazy and it would be no different than any other merger/buy out.

I didn't think of the market definition of being just radio or satellite radio which I would agree makes a huge difference.

[mrsimperless]

This probably makes no sense, but what about an inventor who creates a brand new product and introduces a completely new market? He (or she!) could get a patent on their new invention and essentially hold a monopoly over this new market.

[Honolulu_Blue]

This probably makes no sense, but what about an inventor who creates a brand new product and introduces a completely new market? He (or she!) could get a patent on their new invention and essentially hold a monopoly over this new market.

There's nothing wrong with that. It's inherent in the very nature of a patent. To have a monopoly in a market or just being a monopolist is not illegal. It's very well established that if you have a monopoly due to business acumen, luck, what have you, that's fine.

The offense of monopolization under Section 2 of the Sherman Act requires “(1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen or historic accident.”

A company violates Section 2 only when it acquires or maintains, or attempts to acquire or maintain a monopoly by engaging in exclusionary conduct. For example, in the Microsoft case, Micrsoft was held liable under §2, despite the court’s recognition that it acquired its monopoly legally. The court explained that although it was certainly true that Windows may have gained its initial dominance in the operating system market competitively – through superior foresight or quality … this case is not about Microsoft’s initial acquisition of monopoly power. It is about Microsoft’s efforts to maintain this position through a means other than competition on the merits.

The same goes for patent cases. There have been a number of Section 2 cases brought against drug companies who try to extend the lives of their patents through illegal means.

[mrsimperless]

Thanks for clearing that up HB. It appears I was confusing the definition of the word monopoly with the act of illegally obtaining a monopoly.