'The Sirius-XM Merger: Do Only Consumers Count?'
By Ayn Rand Institute: Alex Epstein (12/03/07)
As expected, Sirius and XM shareholders have just voted to merge--but the companies still face stiff opposition from the government, which has been holding up the process for nine months. Both firms claim that a merger would enable them to combine content and bandwidth to create a new, more efficient firm with a more appealing product--one that would better be able to compete with fierce competition from podcasts, terrestrial radio, HD radio, Internet radio, and other forms of electronic audio entertainment. Some analysts claim that the merger is essential for the companies' survival--a claim bolstered by the fact that the companies' recent quarterly reports revealed that both are still bleeding red ink: XM lost $145 million last quarter, while Sirius lost $120 million.
In the face of all this, why is the merger being held up? Because, according to our government, these companies must definitively demonstrate to its satisfaction that, in the words of FCC chairman Kevin Martin, "consumers would clearly be better off with both more choice and affordable prices." If the companies do not meet this standard, they may not merge--even if that means their extinction.
Sirius and XM's situation provides a powerful example of a common phenomenon: whenever two companies propose a merger, the government and pundits show immense concern for the consumers of a product, and none for the producers involved. This practice is so commonplace as to be uncontroversial--but in fact, it is unjust and un-American. The Declaration of Independence does not say that only "consumers"--that is, potential buyers of a product--have a right to their own "life, liberty, and the pursuit of happiness." It recognizes that all men do, in every aspect of life--including both when they are producing and when they are consuming. In a free society, the relationship between the consumer and producer of a product is not one of master and servant, but of moral and political equals engaging in voluntary trade at mutually agreeable prices. Each pursues his well-being while respecting the rights of the other; the consumer may not demand that the producer be sacrificed for his sake, or vice-versa.
In most business contexts, this is recognized; no one believes that a man has a right to demand that a hardware store sell him a lawnmower for $3 just because he would be "better off" at that price. But where mergers are concerned, the government routinely claims consumers have such a right--with no concern for what this does to producers. Sirius and XM's plan to combine operations has been held up for nine months, and may end up being destroyed, in the name of fears that they might raise the current price of $13 a month for the product they create, or might not offer government-decreed "consumer-friendly" options. In other recent cases, such as planned mergers between Whole Foods and Wild Oats, and between Google and DoubleClick, the government has left these companies' plans in limbo while it "investigates" whether these mergers will be "consumer-friendly"--by whatever interpretation of that subjective term economic bureaucrats choose.
A common reason offered for this treatment of companies seeking to merge is that they are dangerous wielders of "market power," which can be used to "gouge" helpless consumers.
But this sort of market power is a myth. Merging businesses have no coercive power over anyone. They can neither force consumers to buy their products, nor prevent competitors from offering substitute products. (This is in contrast with the government, which can use its coercive power, for example, to prevent anyone besides the U.S. Post Office from offering home letter delivery.) It is impossible for any business to charge a customer more than a product is worth to him, or to escape the need to continually offer customers great value for their money in the face of innovation by other businesses. Market share as such confers no coercive power; this is why a combined Sirius-XM could very well have a 100 percent share of satellite radio and still be out-competed by podcasts, terrestrial radio, HD radio, and other forms of electronic audio entertainment.
The government's power to block mergers, then, is not a necessary protection of consumers; no such protection is needed, since there is no conflict, long-term, between the interests of producers and consumers; producers can only succeed by offering great value to consumers. The government's power to block mergers is, however, a violation of the rights of innocent companies who seek to merge--and of the consumers who would choose to buy their products (such the customers of a combined Sirius-XM).
We must stop this injustice, and start recognizing that individuals have equal rights, both as producers and as consumers, to be left free.
Alex Epstein is an analyst focusing on business issues at the Ayn Rand Institute (http://www.aynrand.org/)
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