How to Exploit Market Power: Horizontal Ownership Concentration and Network Access Pricing

• Published date: 01 March 2024
• DOI: http://doi.org/10.1177/0003603X241228702
• Author: Sumit K. Majumdar
• Date: 01 March 2024
• Subject Matter: Articles

https://doi.org/10.1177/0003603X241228702

The Antitrust Bulletin

2024, Vol. 69(1) 24 –43

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DOI: 10.1177/0003603X241228702

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Article

How to Exploit Market Power:

Horizontal Ownership Concentration

and Network Access Pricing

Sumit K. Majumdar*

Abstract

This article reports an evaluation of the impact of horizontal ownership concentration on

communications sector access pricing outcomes. Detailed historical data of postacquisition impacts

on firms’ access revenue outcomes have enabled analysis for the entire local exchange sector of the

United States telecommunications industry. The findings are (1) the sector’s horizontal ownership

concentration process has caused key access-providing firms’ average access revenue ratios to be

over 16 percent higher; (2) access revenue enhancements, through using market power, by entities

belonging to larger groupings, have resulted in aggregate annual fiscal windfalls of between $5 and

$6 billion; (3) these windfalls have accounted for between 4.5 and 5 percent of provider firms’ total

revenues; (4) on average, each entity evaluated has received approximately between $120 and $150

million in incremental annual revenues via potential overcharge of access rates; and (5) United States

telecommunications customers have incurred a between 6 and 7 percent overcharge on monthly

bills, over several years, because network access charges have been higher, in part due to horizontal

ownership concentration. Access charges are regulated, and horizontal ownership concentration-

enhancing deals were allowed only after stringent institutional assessments. The resultant market

power exploitation has led to the significant exploitation of United States telecommunications

customers. Creation of substantial potential, and across-the-board, inflationary pressures and harm

to consumers has been immense. Classic topics, such as access regulation and merger control, remain

contemporary, demanding detailed attention, if digital technology is to be ubiquitous in humanity’s

service. Concomitantly, key contemporary corporate governance concerns, relating to the emergence

of horizontal ownership concentration patterns, also become apposite since the associated outcomes

have innate major welfare impacts.

Keywords

access revenue share, acquisitions, consolidations, consumer harm, horizontal ownership

concentration, inflationary pressures, market power

*Naveen Jindal School of Management, The University of Texas at Dallas, Richardson, TX, USA

Corresponding Author:

Sumit K. Majumdar, Naveen Jindal School of Management, The University of Texas at Dallas, Richardson, TX 75080, USA.

Email: majumdar@utdallas.edu

1228702ABXXXX10.1177/0003603X241228702The Antitrust BulletinMajumdar

research-article2024

Majumdar 25

1. Expecting efficiencies, the sector-controlling entities engaged in serial acquisitions of other horizontal controllers. See

Calvin Goldman et al., The Role of Efficiencies in Telecommunications Merger Review, 56 Fed. Comm. L. J. 87 (2003) for

details of the mergers phenomenon in the sector.

2. Catherine Tucker, Network Effects and Market Power: What Have We Learned in the Last Decade, 32 Spring AntitruSt 72

(2018).

3. See ALAn Wertheimer, expLoitAtion (1996), and george AkerLoF & robert ShiLLer, phiShing For phooLS: the eConomiCS

oF mAnipuLAtion And deCeit (2015), on the mechanisms used for exploitation.

4. WiLLiAm J. bAumoL & greg SidAk, toWArd Competition in LoCAL teLephony (1994); dAvid e. m. SAppington & denniS L.

WeiSmAn, deSigning inCentive reguLAtionS For the teLeCommuniCAtionS induStry (1996).

5. Facts from many earlier works are utilized. The analysis extends prior similar but not identical work. It is based on the same

historical data used previously. See Sumit K. Majumdar, The Bigness Complex Redux: Horizontal Ownership Concentration

and Efficiency Conundrums, 65 AntitruSt buLL. 628 (2020), Sumit K. Majumdar, Structural Capital and Capital Structure:

Assessing Horizontal Ownership Concentration, 17 europeAn Comp. J. 507 (2021), and Sumit K. Majumdar et al., Mergers

Motives and Technology Deployment: A Retrospective Evaluation, 65 AntitruSt buLL. 120 (2020).

6. As have goods and services markets; see the recent work by thomAS phiLippon, the greAt reverSAL: hoW AmeriCA gAve

up on Free mArketS (2019). See Einer A. Elhauge, The Growing Problem of Horizontal Shareholding, June AntitruSt

Chr. 1 (2017) for the key statement on horizontal or common ownership concentration.

7. Einer A. Elhauge, Horizontal Shareholding, 129 hArvArd L. rev. 1267 (2016).

8. C. Scott Hemphill & Marcel Kahan, The Strategies of Anticompetitive Common Ownership, 129 yALe L. J. 1392 (2020)

contend that horizontal ownership may not cause competitive concerns.

9. The key horizontal ownership defining mechanisms are: horizontal mergers and acquisitions; partial ownership of shares,

for example of two or more firms’ joint investments in a rival competing in the same market, thus creating a conduit to

influence and soften competition through control of operational decision making, a phenomenon called cross ownership;

ownership shares in multiple rivals, by institutional investors, which dampens incentives for firms to compete, this being

the phenomenon of common ownership; and joint ventures, such as in R&D activities as collaborations among rivals

to develop new products through joint or cross-licensing of patented technology, which can result in anti-competitive

outcomes if there are only a few rivals. Einer A. Elhauge et al., Confronting Horizontal Ownership Concentration, 66

AntitruSt buLL. 3 (2021), at 3, has further details of the process.

10. Along with M&As, see John r. kWokA, ControLLing mergerS And mArket poWer: A progrAm For reviving AntitruSt

in AmeriCA (2020), horizontal ownership concentration has been prompted by enhanced institutional investor presence; see

Elhauge, supra note 6, and Elhauge et al., supra note 9. When investors’ holdings overlap across firms competing in the

same category, they are horizontal owners; such owners may influence owned firms to compete less vigorously with one

another; see Ángel L. López & Xavier Vives, Overlapping Ownership, R&D Spillovers, and Antitrust Policy, 127 J. poL.

eCon. 2394 (2019).

11. M&A deals have featured in ownership and control markets for decades; annual deals’ values of $2 trillion account for

around ten percent of United States GDP; see Carl Shapiro, Protecting Competition in the American Economy: Merger

Control, Tech Titans, Labor Markets, 33 J. eCon. perSp. 69 (2019). Edwin A. Rosenberg, teLeCommuniCAtionS mergerS

And ACquiSitionS: key poLiCy iSSueS And optionS For StAte reguLAtorS (1997) and Majumdar et al., supra note 5,

I. Introduction

The article evaluates post-acquisition horizontal ownership concentration impact, a major antitrust

concern, on firms’ access charge outcomes, an important aspect of regulation, in the local exchange

sector of the United States telecommunications industry. In the sector, many incumbent local exchange

carriers’ (ILECs) mergers occurred. Sector ownership concentration resulted.1 Concentration-based

market power in network industries is a key concern.2 Owing to externalities, the impact of such market

power exploitation3 is highly magnified in networks. The analysis evaluates relationships between

horizontal ownership concentration, incumbents’ access pricing behavior, and possible market power

exploitation, given the role of access charges in digital system.4 The evaluation is based on detailed,

well-documented, publicly available, and extensively used historical data.5

Equally, corporate ownership markets have become concentrated and monopolized,6 negatively

impacting well-being7 and enhancing inflationary pressures. Hence, the horizontal ownership concen-

tration issue is germane and provocative.8 Horizontal ownership concentration9 occurs via at-least three

processes. These are (1) private share placements; (2) stock market dealings by individuals or institu-

tional shareholders10; or (3) merger and acquisition (M&A) deals.11 Post-M&A market concentration,