Abstract
The vertical merger of AT&T and Time Warner combined one of the largest multiple video program distributors (MVPDs) in the United States with one of the largest providers of pay-TV programming. This study evaluates the potential competitive effects of the transaction by considering changes in the equity valuations of the respective upstream and downstream competitors to the merging parties when news of their proposed merger became public. Consistent with the government’s central theory of harm, it appears that financial markets expected the proposed transaction to result in Time Warner increasing its carriage fees to AT&T’s and DirecTV’s MVPD rivals. Market reactions to the announcement of AT&T’s commitment to enter into binding arbitration when negotiating future carriage fees for Tuner content provide further support for this inference. The results are difficult to rationalize in terms of the various efficiencies and synergies that AT&T claimed it would realize from the merger.
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