AT&T-Time Warner is Godzilla v Rodan: citizens will get squashed

Antitrust has two main theories of competition. One is to try to ensure that lots of rivals compete in open markets to create better products and services. Call this the democratic theory. The other is to allow a few giants to control everything, then use antitrust only to make sure there are enough giants to create some competition, here and there. Call this the Godzilla versus Rodan theory. Godzilla is of course the Japanese irradiated sea monster and Rodan is a flying beast strong enough to fight Godzilla.

If you are a fan of the Godzilla versus Rodan theory, you’ll love the court decision this week that cleared the way for AT&T to buy Time Warner, despite the government’s attempt to block the deal. Judge Richard Leon, a George W Bush appointee whose opinions are frequently overturned, decided that giving AT&T enormous new powers over news and television is the only way to create competition for such supercreatures as Google, Facebook and Amazon.

In doing so, the judge laid out a vision for the American political economy in which a small group of fantastically powerful conglomerates serve as gatekeepers to, and increasingly owners of, virtually all news, entertainment, books and online content. The judge even described how these megacorporations will get to use personally targeted advertising to exploit and manipulate the individuals who try to buy and sell in their realms. Godzilla can do pretty much whatever he wants to the citizen, this theory holds, as long as Rodan and maybe also Mechagodzilla get to share in the spoils.

There are many problems with this thinking. Buyers – sooner or later – end up paying more for less. Creators and workers end up with fewer places to sell their ideas, products and labor. Worse, economic power over the entrepreneur and political power over the citizen are concentrated ever more. Worse yet, thanks to all the data these corporations control, they increasingly have the ability to charge different people different prices for the same product or service.

To conclude that the best way to serve the interests of the public is to breed another Godzilla, the judge had to ignore the history of American antimonopoly law in two respects, one theoretical and one technical. First, as Senator John Sherman, author of America’s most famous antitrust law, made clear, the main purpose of antimonopoly is to promote the “liberty” of the citizen. Traditionally, this was achieved by preventing all unnecessary concentrations of power and by carefully regulating the monopoly networks citizens rely on for communications and transportation.

Second, one of the main traditional ways American antimonopoly law achieved both these ends was precisely by preventing a network like AT&T from “vertically integrating” and going into competition with the people who depend on its network to do their business. For most of the nation’s history, Americans regulated banks, railroads, the telegraph, electric utilities, drug stores, movie theaters, television – and repeatedly, AT&T itself – to ensure a clear separation between the network and the act of production. To reinforce this division, Americans also routinely prevented networks from discriminating among different sellers or buyers, thereby ensuring that all real decisions in any market are made not by any middleman but by the seller and buyer.

A generation ago, libertarians took aim at this basic American approach to antimonopoly. They eliminated many of restrictions on vertical integration, and also made it easier for giant networks to favor one company or citizen over another. One result was the tie up of Comcast and NBC Universal in 2011, a deal the Obama administration should have blocked. Another was freedom for network monopolists Amazon, Google and Facebook to get into the business of publishing and video production.

But in recent years, growing evidence that such vertical integration can result in dangerous forms of consolidation and manipulation has led to calls to restore the traditional American policy of clearly separating production and distribution. The Antitrust Division of the Department of Justice had that in mind when it moved to block AT&T’s takeover of Time Warner.

The good news is the government has ample reasons to bring and win an appeal. One is that Leon simply ignored all pertinent precedent. Another is that his decision is dangerously contradictory. The judge first states that the power of Google and Facebook all but forced AT&T to buy Time Warner, just to keep up. Pages later he states that whatever massive additional powers AT&T will gain from the deal will have no effect whatsoever on consumers, creators or AT&T’s rivals in lines of business such as wireless and broadband.

The Department of Justice was right to challenge this merger and right to focus on the dangers of vertical integration. Leon’s contention that the only way to battle bigness is with more bigness is not only an intentional misreading of-America’s rich body of antimonopoly law, it is a direct threat to American democracy.