Is Professor Salop Right That Judge Leon Bungled United States v. AT&T?
In his forthcoming article, The AT&T/Time Warner Merger: Judge Leon Garbled Professor Nash, Professor Steven Salop attempts but fails to cast doubts on Judge Leon’s decision dismissing the government’s challenge to the proposed merger of AT&T and Time Warner. He echoes the government’s argument on appeal that Judge Leon’s reasoning is illogical, that it failed to understand the Nash bargaining model, that he weighed the industry testimony incorrectly, that he should have taken long blackouts into account as credible threats, and that the diversion rates driving Professor Shapiro’s model are sufficiently probative. To these economic criticisms, Professor Salop adds the psychological conjecture that Judge Leon succumbed to confirmation bias. Is such speculation the future of merger enforcement? We hope not. Confining our analysis to economics, we show that a close reading of Judge Leon’s reasoning confirms that he did understand the Nash bargaining model, including the premise that the fallback option must be credible to be effective in influencing the negotiated outcome. That close reading also confirms that Judge Leon found that the results of the government’s model turn sensitively on the values of the inputs used to run the model and that, accordingly, he understood that, with unreliable estimates of those inputs, the model cannot support a reliable inference of competitive harm. Judge Leon also found that the reliability of the government’s model was further undercut by its inconsistency with testimony on how real-world industry bargaining works, and on the actual observed effects of past vertical integration in the industry. Against this background, there is no basis from settled economic principles or practice to conclude, as Professor Salop does, that Judge Leon’s findings regarding the relevance and reliability of the government’s proffered evidence were clearly erroneous. Given the facts and testimony presented in the opinion, Judge Leon reasonably concluded that the government failed to meet its burden of proof.