Mondays With Murray: Rothbard On The Comcast and Time Warner Merger
The media response to the news of the pending merger between cable giants Comcast and Time Warner has been mostly negative. The two cable and broadband suppliers currently operate in different markets, but this didn’t stop pundits from proclaiming a rise in pricing would result due to decreased competition.Once the forty-five Billion dollar deal gains the seal of approval from the federal government the combined Comcast and Time Warner entity is expected to have about 30 million subscribers. The merger will give the entity access to 70% of U.S. households. Access to households is only one part of the equation. The other part is convincing customers to buy your products. Time Warner and Comcast have been struggling peddling one of their products in recent years. They have been selling pay-TV packages to fewer and fewer households over the past few years.The entity that is formed at the completion of the merger will remain beholden to the laws of supply and demand as they strive to set a price that achieves market equilibrium. Murray Rothbard describes below, in an excerpt from Man, Economy, and State, how the number of firms or disagreements between firms in a given industry does not drive price. Rather the desire to make a profit by providing a service to customers drives the price.
The relevant consideration is not the fewness of the firms or the state of hostility or friendship existing among firms. Those writers who discuss oligopoly in terms applicable to games of poker or to military warfare are entirely in error. The fundamental business of production is service to the consumers for monetary gain, and not some sort of “game” or “warfare” or any other sort of struggle between producers. In “oligopoly,” where several firms are producing an identical product, there cannot persist any situation in which one firm charges a higher price than another, since there is always a tendency toward the formation of a uniform price for each uniform product. Whenever firm A attempts to sell its product higher or lower than the previously ruling market price, it is attempting to “discover the market,” to find out what the equilibrium market price is, in accordance with the present state of consumer demand. If, at a certain price for the product, consumer demand is in excess of supply, the firms will tend to raise the price, and vice versa if the produced stock is not being sold. In this familiar pathway to equilibrium, all the stock that the firms wish to sell “clears the market” at the highest price that can be obtained. The jockeying and raising and lowering of prices that takes place in “oligopolistic” industries is not some mysterious form of warfare, but the visible process of attempting to find market equilibrium—that price at which the quantity supplied and the quantity demanded will be equal. The same process, indeed, takes place in any market, such as the “nonoligopolistic” wheat or strawberry markets. In the latter markets the process seems to the viewer more “impersonal,” because the actions of any one individual or firm are not as important or as strikingly visible as in the more “oligopolistic” industries. But the process is essentially the same, and we must not be led to think differently by such often inapt metaphors as the “automatic mechanisms of the market” or the “soulless, impersonal forces on the market.” All action on the market is necessarily personal; machines may move, but they do not purposefully act. And, in oligopoly situations, the rivalries, the feelings of one producer toward his competitors, may be historically dramatic, but they are unimportant for economic analysis.To those who are still tempted to make the number of producers in any field the test of competitive merit, we might ask (setting aside the problem of proving homogeneity): How can the market create sufficient numbers? If Crusoe exchanges fish for Friday’s lumber on their desert island, are they both benefiting, or are they “bilateral monopolists” exploiting each other and charging each other monopoly prices? But if the State is not justified in marching in to arrest Crusoe and/or Friday, how can it be justified in coercing a market where there are obviously many more competitors?Economic analysis, in conclusion, fails to establish any criterion for separating any elements of the free-market price for a product. Such questions as the number of firms in an industry, the sizes of the firms, the type of product each firm makes, the personalities or motives of the entrepreneurs, the location of plants, etc., are entirely determined by the concrete conditions and data of the particular case. Economic analysis can have nothing to say about them.
The Comcast and Time Warner merger has been reported by the press as a dramatic shift in the cable and broadband markets. In practice the deal will have no influence on how the price of your cable or internet is determined.Rothbard notes, firms raise and lower prices in an effort to discover the market. This will occur in any market, regardless if it is an oligopoly or not. Cable and broadband providers will strive to generate as much revenue as possible by delivering content to customers at the highest rate the market allows. This would be the case if Comcast and Time Warner remain separate or if they merge.It is not a secret that more and more people are opting to cut the cord to their cable all together. My wife and I cut the cord a few months ago and use a Mohu Leaf Indoor HDTV Antenna
