Second Supplemental Declaration of J. Gregory Sidak Concerning the Competitive Consequences of the Proposed Merger of Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc. (July 24, 2007).
註釋 In this declaration, I critique two reports submitted to the Federal Communications Commission in July 2007 on behalf of XM and Sirius in support of their proposed merger: one by Professor Thomas W. Hazlett and another by Dr. Harold Furchtgott-Roth. I have previously addressed some aspects of both reports in my supplemental declaration, which can be downloaded from the Social Science Research Network. The reports of Professor Hazlett and Dr. Furchtgott-Roth fail to provide evidence that informs the relevant product market definition for this proceeding - namely, whether satellite digital audio radio services (SDARS) customers perceive alternative audio entertainment sources (including MP3 players, Internet radio, and terrestrial radio) as being sufficiently close substitutes such that a hypothetical monopoly provider of SDARS could not profitably increase prices. More importantly, both experts appear to reject the current antitrust paradigm for analyzing mergers. In its place, they offer novel theories for merger review. Even if XM's and Sirius's experts are correct about radically redesigning the framework for antitrust analysis of horizontal mergers, it is not appropriate for the FCC to announce some alternative merger guidelines without a proper rulemaking simply because doing so would suit the current merger proponents. I begin in Part I with a critique of Professor Hazlett's report. Professor Hazlett mischaracterizes which party bears the burden of proof in this merger proceeding, claiming that the burden falls on both merger opponents and regulatory agencies. I demonstrate that by focusing on quality-adjusted prices, Professor Hazlett ignores the merged firm's ability to increase commercials. Professor Hazlett also omits mentioning that SDARS customers would be required to subscribe to a new, more expensive package to receive any increase in quality according to his concept of a quality improvement. Next, I analyze Professor Hazlett's novel tests for product market definition. According to Professor Hazlett, a product market can exist only if the market value of all suppliers of the service exceeds the present value of funds invested. In a later section of his report, Professor Hazlett suggests another novel test for market definition, which considers the relative market value of terrestrial broadcasting properties to satellite radio operators. I demonstrate why these and other novel antitrust theories offered by Professor Hazlett are incorrect and should not be used. Finally, I respond to Professor Hazlett's criticisms of my original declaration. In Part II, I critique Dr. Furchtgott-Roth's report. Dr. Furchtgott-Roth seeks to extend the standard two-year window for entry analysis in merger cases so that nascent services like mobile Internet radio can have time to develop. That approach is not consistent with existing merger law. Dr. Furchtgott-Roth also repeats Professor Robert Willig's argument in the DirecTV-EchoStar proposed merger - that XM and Sirius do not compete against one another, yet each does compete against terrestrial radio and other services. I argue that this interpretation of the extent of existing competition between XM and Sirius is not plausible. Finally, in Part III, I perform an event-study analysis to test XM's and Sirius's hypothesis that the proposed merger would expand output and decrease prices (the "procompetitive hypothesis"). I examine the abnormal returns of satellite equipment manufacturers around the day on which the proposed merger of XM and Sirius was announced. I find that the market perceived the announcement of the proposed merger between XM and Sirius as "bad news" for satellite equipment manufacturers, which implies that the proposed merger would result in higher prices for SDARS customers. 