Last week's big business news was the announcement that Comcast, a gigantic provider of cable TV and high-speed Internet service, has reached a deal to acquire Time Warner, which is merely huge. If regulators approve the deal, Comcast will be an overwhelmingly dominant player in the business, with about 30 million subscribers.
So let me ask two questions about the proposed deal. First, why would we even think about letting it go through? Second, when and why did we stop worrying about monopoly power?
On the first question, broadband Internet and cable TV are already highly concentrated industries, with a handful of corporations accounting for most of the customers. Once upon a time, antitrust authorities, looking at this situation, probably would have been trying to cut Comcast down to size. Letting it expand would have been unthinkable.
Comcast's chief executive says not to worry: "It will not reduce competition in any relevant market because our companies do not overlap or compete with each other. In fact, we do not operate in any of the same ZIP codes." This is, however, transparently disingenuous. The big concern about making Comcast even bigger isn't reduced competition for customers in local markets — for one thing, there's hardly any effective competition at that level anyway. It is that Comcast would have even more power than it already does to dictate terms to the providers of content for its digital pipes — and that its ability to drive tough deals upstream would make it even harder for potential downstream rivals to challenge its local monopolies.
The point is that Comcast perfectly fits the old notion of monopolists as robber barons, so-called by analogy with medieval warlords who perched in their castles overlooking the Rhine, extracting tolls from all who passed. The Time Warner deal would in effect let Comcast strengthen its fortifications, which has to be a bad idea.
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Interestingly, one cliché seems to be missing from the boilerplate arguments being deployed on behalf of this deal: I haven't seen anyone arguing that the deal would promote innovation. Maybe that's because anyone trying to make that argument would be met with snorts of derision. In fact, a number of experts — such as Susan Crawford of Benjamin N. Cardozo School of Law, whose recent book "Captive Audience" bears directly on this case — have argued that the power of giant telecommunication companies has stifled innovation, putting the United States increasingly behind other advanced countries.
There are good reasons to believe this isn't a story about just telecommunications, that monopoly power has become a significant drag on the U.S. economy as a whole.
There used to be a bipartisan consensus in favor of tough antitrust enforcement. During the Reagan years, however, antitrust policy went into eclipse, and ever since, measures of monopoly power, such as the extent to which sales in any given industry are concentrated in the hands of a few big companies, have been rising fast.
At first, arguments against policing monopoly power pointed to the alleged benefits of mergers in terms of economic efficiency. Later, it became common to assert that the world had changed in ways that made all those old-fashioned concerns about monopoly irrelevant. Aren't we living in an era of global competition? Doesn't the creative destruction of new technology constantly tear down old industry giants and create new ones?
The truth is that many goods and especially services aren't subject to international competition: New Jersey families can't subscribe to Korean broadband. Meanwhile, creative destruction has been oversold: Microsoft may be an empire in decline, but it's still enormously profitable thanks to the monopoly position it established decades ago.
Moreover, there's good reason to believe that monopoly is itself a barrier to innovation. Crawford argues persuasively that the unchecked power of telecom giants has removed incentives for progress: Why upgrade your network or provide better services when your customers have nowhere to go?
The same phenomenon may be playing an important role in holding back the economy as a whole. One puzzle about recent U.S. experience has been the disconnect between profits and investment. Profits are at a record high as a share of GDP, yet corporations aren't reinvesting their returns in their businesses. Instead, they're buying back shares, or accumulating huge piles of cash. This is exactly what you'd expect to see if a lot of those record profits represent monopoly rents.
It's time, in other words, to go back to worrying about monopoly power, which we should have been doing all along. The first step on the road back from our grand detour on this issue is obvious: Say no to Comcast.
