By Nathaniel Luce
A leading antitrust expert told Congress today that the proposed merger between live entertainment giants Ticketmaster and Live Nation could end up benefiting artists and fans. However, in his testimony, Professor Luke Froeb of the Vanderbilt Owen Graduate School of Management cautioned that supply chain innovations which could result from such a merger might also result in monopolistic activities that are harmful to artists and consumers.
Addressing the U.S. House of Representatives Subcommittee on Courts and Competition Policy, Froeb detailed how the current industry supply chain is a “complex group of firms offering sometimes overlapping services, including managers, promoters, venues, ticketing firms and merchandisers.” Each of these groups can chip away at gross earnings and performance profits, resulting in an inflated monetary gap between what artists receive and fans pay, he said.
But the merger could reduce this supply chain fragmentation, facilitating more and better-attended live events and lower ticket prices for consumers. “Coordination across all elements of the supply chain is required to create the greatest value for artists and their fans,” said Froeb, who serves as the William C. Oehmig Associate Professor in Entrepreneurship and Free Enterprise at the Owen School and was Director of the Bureau of Economics at the Federal Trade Commission from 2005-2007. “Currently there is little coordination, and little incentive to innovate because each element in the supply chain receives only a small slice of the profit pie.”
The potential consolidation of Ticketmaster and Live Nation represents a vertical merger – one between firms at different stages of the industry supply chain – which can yield such tangible benefits as the elimination of “double markups” on goods and services (resulting from numerous “middlemen”), better alignment of incentives or the spurring of overall innovation in the industry.
Unlike horizontal mergers, which occur between firms that compete with each other at similar stages of the supply chain, vertical mergers are less well understood and less clear-cut in terms of antitrust policy, according to Froeb. For this reason, potential benefits must be weighed carefully against the potential for the merged firm to influence competitors’ costs because of its dominance of industry supply chain components or the potential for the company to erect barriers to market entry and competition.
Froeb stated that the oversight hearings provide a valuable opportunity to question, in a broader sense, whether existing competition policy supports the overarching goal of “increasing the total welfare of consumers” or lags behind in understanding the commercial practices it regulates. “The legitimacy and effectiveness of our enforcement policies depend on it,” he said.
The full text of Froeb’s testimony is available for download by clicking here.
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