A funny thing happened when the District of Columbia’s attorney general tried to intervene in the marketâ€”he didn’t get the outcome he wanted. Last December, the attorney general’s antitrust unit expressed concern about the fate of two local movie theaters following the announced merger of AMC and Lowes Cineplex. The attorney general forced the companies to sign a “consent decreeâ€ requiring the sale of the two theaters, one located in Union Station and the other in the upper northwest section of the city on Wisconsin Avenue. AMC sold the theater in Union Station, but not the one on Wisconsin Avenue. According to court documents, AMC couldn’t find a buyer who would accept the terms of the theater’s existing lease. The attorney general forced AMC to continue operating the theater while it searched for a buyer, and the company said it was losing money. The attorney general’s office conceded that its consent decree forced AMC to continue paying “above marketâ€ rents that it couldn’t recoup through box-office sales. Hence, the Wisconsin Avenue theater is now closed.
In theory, another buyer could enter the market and reopen the theater, as AMC was forced to leave all of the theatrical assets in place. Unfortunately for the attorney general, the building’s owner has a pre-existing agreement with its primary tenant, Fannie Mae, which gives that agency right of first refusal on assuming the space vacated by AMC. Even if Fannie Mae passes, there’s no guarantee that another company will realize the attorney general’s goal of a Wisconsin Avenue theater not owned by AMC.
The attorney general went to great lengths in his antitrust complaint to create the illusion that the combined AMC-Lowes company constituted a horrible attack against consumers. The complaint drew a typically narrow market definition. Only six theaters were considered part of the market for “exhibition of first-run mainstream moviesâ€ within the boundaries of D.C. All suburban theatersâ€”even those easily accessible by subwayâ€”were excluded, because “movie-goers typically do not want to travel far from their homes to attend a movie.â€ (It’s also notable that smaller theaters like the one on Wisconsin Avenue, which had six screens, were displaced by competition from two larger multiplexes that opened in recent years at the urging of the D.C. government’s “economic developmentâ€ gurus.)
All theaters that exhibited primarily “independentâ€, “artâ€ or “foreign sub-titledâ€ movies were excluded, because they did not provide “significant competitionâ€ for “big-budget films intended for mass appeal with national advertising budgets, large guaranteed rentals, and wide initial release.â€ This ignores the fact that “artâ€ theaters can easily be converted, if there’s market demand, into first-run “mainstreamâ€ theaters. It’s also worth noting that many “mainstreamâ€ films start out as limited releases in smaller theaters.
All other forms of entertainment, including live performances and watching films on DVD, were excluded because, in the attorney general’s learned opinion, “consumers are not likely to switch [to alternatives] in response to a small but significant non-transitory increase in the price of movie tickets.â€ And there lies the crux of the attorney general’s problem. He’s upset because, should a merger be followed by short-term price increases, consumers won’t choose to respond by switching to alternatives or abstaining from purchasing the product in question. Since consumers won’t maintain the status quo, the attorney general will do so by force. He knows what’s best for us.
This is the basis of all merger review under antitrust regulation. Existing price levels are always presumed to be correct, and hypothetical post-merger price levels are usually prejudged to be incorrect. In this sense, antitrust is just another way of saying “price controls.â€ By the regulators’ own admissions, merger review is designed to prevent price increases within a two-year period following a change in the market. There’s no acknowledgement of the need for long-term planning. Consumers have to be protected from any immediate change, even if that means market stagnation.