Academics Earn $1,000/Hour Promoting Mega-Mergers

POSTED BY MARTIN KICH

These are the opening paragraphs of a new report by Jesse Eisinger and Justin Elliott for ProPublica:

“A serial acquirer, AT&T must persuade the government to allow every major deal. Again and again, the company has relied on economists from America’s top universities to make its case before the Justice Department or the Federal Trade Commission. Moonlighting for a consulting firm named Compass Lexecon, they represented AT&T when it bought Centennial, DirecTV, and Leap Wireless; and when it tried unsuccessfully to absorb T-Mobile. And now AT&T and Time Warner have hired three top Compass Lexecon economists to counter criticism that the giant deal would harm consumers and concentrate too much media power in one company.

“Today, “in front of the government, in many cases the most important advocate is the economist and lawyers come second,” said James Denvir, an antitrust lawyer at Boies, Schiller.

“Economists who specialize in antitrust—affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities—reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be ‘anti-competitive’: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.

“Bottom of FormSome of the professors earn more than top partners at major law firms. Dennis Carlton, a self-effacing economist at the University of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career, he has made about $100 million, including equity stakes and non-compete payments, ProPublica estimates. Carlton has written reports or testified in favor of dozens of mergers, including those between AT&T-SBC Communications and Comcast-Time Warner, and three airline deals: United-Continental, Southwest-Airtran, and American-US Airways.

“American industry is more highly concentrated than at any time since the Gilded Age. Need a pharmacy? Americans have two main choices. A plane ticket? Four major airlines. They have four choices to buy cell phone service. Soon one company will sell more than a quarter of the quaffs of beer around the world.

“Mergers peaked last year at $2 trillion in the U.S. The top 50 companies in a majority of American industries gained share between 1997 and 2012, and “competition may be decreasing in many economic sectors,” President Obama’s Council of Economic Advisers warned in April.

“While the impact of this wave of mergers is much debated, prominent economists such as Lawrence Summers and Joseph Stiglitz suggest that it is one important reason why, even as corporate profits hit records, economic growth is slow, wages are stagnant, business formation is halting, and productivity is lagging. ‘Only the monopoly-power story can convincingly account’ for high business profits and low corporate investment, Summers wrote earlier this year.

“In addition, politicians such as U.S. Senator Elizabeth Warren have criticized big mergers for giving a handful of companies too much clout. President-elect Trump said in October that his administration would not approve the AT&T-Time Warner merger ‘because it’s too much concentration of power in the hands of too few.’

“During the campaign, Trump didn’t signal what his broader approach to mergers would be. But the early signs are that his administration will weaken antitrust enforcement and strengthen the hand of economists. He selected Joshua Wright, an economist and professor at George Mason’s Antonin Scalia Law School, to lead his transition on antitrust matters. Wright, himself a former consultant for Boston-based Charles River Associates, regularly celebrates mergers in speeches and articles and has supported increasing the influence of economists in assessing monopoly power. “Mergers between competitors do not often lead to market power but do often generate significant benefits for consumers,” he wrote in The New York Times this week.”

 

The complete report is available at: https://www.propublica.org/article/these-professors-make-more-than-thousand-bucks-hour-peddling-mega-mergers?utm.

 

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