A Careful Examination of the Live Nation-Ticketmaster Merger

Marshall-Wythe School of Law

A CAREFUL EXAMINATION OF THE PROPOSED LIVE NATION-

ICKETMASTER MERGER

Alan J. Meese

William & Mary Law School

Barak D. Richman

Duke University School of Law

William & Mary Law School Research Paper No. 09-41

This paper can be downloaded without charge from

the Social Science Research Network Electronic Paper Collection:

http://ssrn.com/abstract

= 1542626

A Careful Examination of the

Proposed Live Nation-Ticketmaster Merger

. eese

Barak D. Richman

th. They deserve honesty. The

best music, you can seek some shelter in it momentarily, but it's essentially

with.

God have mercy on the man who doubts what he's sure of.

“Brilliant Disguise”

n the popular

een asked as

erger of Live Nation and Ticketmaster, and

we do so with the objectivity and honesty called for by The Boss’s quotes above. The

whether the

ation are two

t the merged

petitive. We

ing industry.

try, and along

res based on

a competitive

kets to their own events and can thus easily forgo

ibution is an

ely that even

a monopolist provider of fully outsourced ticketing services could exercise market power.

Ultimately, a proper assessment of the horizontal effects of this merger would have to

The second category of arguments by critics opposing the merger rests on claims that

vertical aspects of the transaction would produce anticompetitive effects. Indeed,

Alan J M

People deserve better. They deserve the tru

there to provide you something to face the world

gsteen--Bruce Sprin

Tunnel of Love (1987)

As great admirers of The Boss and as fans of live entertainment, we share i

dismay over rising ticket prices for live performances. But we have b

antitrust scholars to examine the proposed m

proposed merger has been the target of aggressive attacks from several industry

commentators and popular figures, but the legal and policy question is

transaction is at odds with the nation’s antitrust laws.

One primary source of concern to critics is that Ticketmaster and Live N

leading providers of ticket distribution services, and these critics argue tha

entity would have a combined market share that is presumptively anticom

observe, however, that this transaction is taking place within a rapidly chang

The spread of Internet technologies has transformed the entertainment indus

with it the ticket distribution business such that a reliance on market sha

historical sales is misleading. A growing number of venues, aided by

bidding process that creates moments of focused competition, can now acquire the

requisite capabilities to distribute tic

reliance upon providers of outsourced distribution services. If self-distr

available and attractive option for venues, as it appears to be, then it is unlik

weigh heavily the emerging role of Internet technologies in this dynamic business and the

industry-wide trend towards self-distribution.

Ball Professor of Law, William and Mary, ajmees@wm.edu

Professor of Law and Business Administration, Duke University, richm[email protected]

, and thus the

ement among

competitive

of academic

our vantage

the proposed

at the merger

downstream

a number of

ry, are likely

erger and would be unlikely but for the

companies’ integration. For these reasons, we submit this analysis in an effort to inform

the debate with current economic and legal scholarship.

Ticketmaster’s and Live Nation’s core businesses are in successive markets

proposed transaction is primarily a vertical merger, but there is broad agre

economists and antitrust authorities that vertical mergers rarely introduce

concerns and are usually driven by efficiency motivations. This wealth

scholarship, which is reflected in current antitrust law, has not—from

point—been properly incorporated into the public dialogue concerning

merger. To the contrary, critics articulate concerns, including the fears th

would lead to the leveraging of market power and the foreclosure of

competition, that are refuted by accepted scholarship. Moreover, there are

specific efficiencies that, consistent with economic and organizational theo

to emerge from a Live Nation-Ticketmaster m

A Careful Examination of the

Proposed Live Nation-Ticketmaster Merger

Meese

Barak D. Richman

...................

.................... 1

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II .................

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.................. 5

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................... 5

.................. 9

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n..............

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IV ..................

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.................. 4

.................. 6

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4. Industry-wide Vertical Integration.......................................................................102

Addressing Critics of the Live Nation-Ticketmaster Transaction .............................. 105

1. Leveraging Market Power from Ticket Distribution to Concert Promotion........107

2. Foreclosing Competition in Ticket Distribution..................................................111

Summary ..................................................................................................................... 116

V. Conclusion ................................................................................................................ 117

Alan J.

Executive Summary.................................................................................... ...

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...

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...

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...

....

...

tit

Horizontal Efficiencies Resulting from the Merger....................................

... 79

....

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.. ii

I. Introduction ............................................................................................ ..

II. Background on Live Entertainment: Industry Structure and Trends ............................ 5

Overview .......................................................................................................................

Parties to Proposed Merger................................................................... . 13

Recent Industry Developments............................................................... .. 18

I. Analysis of Merger’s Horizontal Consequences................................ .. 23

Market Definition................................................................................... ..

1. General Standards Governing Market Definition......................... ..

272. Identification of Relevant Consumers .......................................... .

.23. Geographic and Product Markets.................................................. ..

34. Applying the SSNIP Test.............................................................. ..

Identification of Market Participants and Calculation of Market Share .

Potential Adverse Effects ....................................................................... ..

51. Coordinated Interaction ................................................................ ..

.52. Unilateral Effects .......................................................................... ..

Entry.......................................................................................................................... 64

Concerns About a Purported Loss of “Future” or “Potential” Compe io 69

Summary ................................................................................................ ..

80. Analysis of Merger’s Vertical Consequences..................................... .

The Evolving Economic and Legal Treatment of Vertical Integration.. ..

Scrutiny of Ticketmaster’s Vertical Agreements................................... .. 88

Efficiencies from Vertical Integration ................................................. .. 93

1. Investments in Promotion and Information .................................. . .9

2. Cooperative Adaptation to Meet Artists’ Demands, Respond to rk

.9Changes, & Pursue Innovations................................................... ..

3. Targeted Linkages Between Venues, Entertainers, and Fans...... . 99

Executive Summary

ment, Inc.

ment. The proposed

changing

Internet

technologies and respond to disruptions to previously reliable revenue flows. The

er the merger is

us to examine the

ences of the merger in light of public criticism. Our

ana is based

Live Nation and Ticketmaster both provide multiple services that contribute to the

tion and

operates.

arketing company,

sells tickets in the primary and secondary markets, licenses technology that facilitates the

self-distribution of tickets for assorted venues, and manages entertainment talent.

Because Live Nation’s primary business is in live entertainment promotion and

Ticketmaster’s primary business is in primary ticket sales distribution, the proposed

transaction is chiefly a vertical merger and leads to the integration of successive stages in

On February 10, 2009, Live Nation, Inc. and Ticketmaster Entertain

announced their intentions to merge and create Live Nation Entertain

merger is one of several recent and significant developments in a rapidly

industry, and it reflects the search for new business models that capitalize on

Department of Justice’s Antitrust Division has been investigating wheth

permissible under the nation’s antitrust laws, and the parties have asked

legality and competitive consequ

lysis reflects our own views, not those of the parties or their counsel, and

only on publicly available information.

production of live entertainment. Live Nation, the world’s largest producer of live

concerts, engages in the promotion of concerts and other events, the opera

management of live entertainment venues, various forms of entertainment-

merchandising, and the sale of tickets for events at venues it owns or

Ticketmaster, the world’s leading live entertainment ticketing and m

the value chain for producing and delivering live entertainment. Economic theory

rmissive approach to

cket sales

poised to

which it has

no affiliation. We therefore examine both the horizontal and the vertical consequences

w a Live Nation-

n. Following

arket

kelihood of any

coordinated or unilateral adverse effects caused by the merger; any potential competition

y the merger.

Our m

he principal

vant market

itory price

. Many enter

d agents, but an

tegies, in which

lf-distribute tickets to the events they host. Some pursue vertical

integration strategies by developing in-house technology to self-distribute

tickets, and some purchase “enabling” technology and services from ticketing

technology companies that support ticket self-distribution. This “enabling”

option has become increasingly common, indicating that the technology

underlying Internet ticketing has become widespread and has measurably

contributed to major organizational changes in the marketing of live

entertainment.

instructs that such vertical arrangements are usually motivated by efficiency

considerations, and antitrust law accordingly has adopted a very pe

such mergers. Nonetheless, Live Nation is also engaged in primary ti

(primarily for venues it owns or operates), and some have argued that it is

compete vigorously with Ticketmaster to distribute tickets for venues with

of the transaction.

Horizontal Analysis. Our horizontal analysis focuses on ho

Ticketmaster merger would impact the market for primary ticket distributio

the Department of Justice Merger Guidelines, it includes a discussion of m

definition, market participants, and approximation of market shares; the li

that is foreclosed by the merger; and any horizontal efficiencies created b

ain conclusions are as follows:

x Venues (rather than ticket purchasers, i.e., concert-goers) are t

purchasers of ticket distribution services. Defining the rele

requires evaluating how venues would respond to a non-trans

increase by providers of these services.

x Venues pursue many different methods of distributing tickets

into contracts with ticket distributors that serve as outsource

increasing number have pursued vertical integration stra

venues se

iii

x Many venues consider vertical integration to be a reasona

outsourced ticket distribution. If self-distribution technology i

available, then venues would self-distribute in response to a s

increase by a hypothetical monopolist of outsourced ticket dis

services. Thus, a critical question in evaluating the competitiv

proposed merger—one that overrides the significance of calcula

shares and most other determinations required by the merger g

whether the ease and attractiveness of self-distribution strategi

any possibility of supracompetitive pricing. For this reason, cr

proposed merger

ble substitute for

s widely

ignificant price

tribution

eness of the

ting market

uidelines—is

es would offset

iticism of the

that rests on the parties’ historical market shares fails to

likely to accurately

f ticket

itigate the

g remaining

t venues

adopt when ticket distribution contracts expire creates moments of focused

can increase

participants appears

so require a

If self-

s many providers

teral increase in

rs have responded to

nt invitations by venues for bids to provide or support ticket distribution

ipants have the

o a merged

storical market

distribution

he ticket distribution

stribute and tailor

gies for venues, such as Veritix, or from large

venue operators and promoters, such as AEG. These firms are at least as

likely to sustain a competitive threat to the merged company as Live Nation

was to pose a threat to Ticketmaster if the merger were not consummated.

Moreover, if enablement technologies have become as attractive and

widespread as they appear to be, then the ready availability of these

technologies could alone deter a merged Live Nation-Ticketmaster from

charging supracompetitive prices.

recognize the market’s technological dynamism and is un

identify market power.

x The widespread possibility of self-distribution, heterogeneity o

distribution contracts, and concealment of contractual terms m

likelihood that the merger would encourage any collusion amon

market competitors. Moreover, the competitive bidding process tha

competition in which outsiders can gain entry and small firms

market share, with the result that collusion among market

unlikely.

x An analysis of the merger’s unilateral competitive effects will al

determination of the attractiveness and ease of self-distribution.

distribution technology is widely available, then the market’

of enabling technology would promptly respond to any unila

price by the merged entity. A number of assorted provide

rece

services. These experiences suggest that current market partic

capabilities to meet the needs of venues that seek alternatives t

Live Nation Entertainment. It additionally confirms that hi

sales belie the current level of competitiveness in the ticket

market.

x Competitive entry into, and competitive expansion in, t

market could either come from the many companies that di

Internet ticketing technolo

x It is possible that horizontal efficiencies could result from the

merger, perhaps if one company can provide ticket distr

lower cost than the other, but we have not encounter

proposed

ibution services at a

ed any evidence

suggesting that horizontal efficiencies will be more than modest.

legal scholars

erally reflect

rtical elements of

the proposed Live Nation-Ticketmaster merger therefore suggest that many efficiency

motivations underlie the transaction. Nonetheless, critics of the proposed Live Nation-

nents of the

ecades ago, when

ost vertical

theory have

revealed deep flaws in those suspicions. Current antitrust law has evolved accordingly,

becoming much more accepting of vertical mergers, and nearly all such transactions

rs also have the

ry and

ggest that the

x Investments in promotion and information

Vertical Analysis. There is broad consensus among economists and

that vertical mergers only very rarely pose competitive risks and instead gen

procompetitive efforts to minimize transaction costs. The substantial ve

Ticketmaster merger persist in expressing opposition to vertical compo

merger. Such criticisms were common in antitrust decisions several d

the “inhospitality tradition” directed antitrust policy to be suspicious of m

arrangements, including vertical integration, but advances in economic

survive antitrust scrutiny.

In addition to posing little risk of competitive harm, vertical merge

potential to generate many efficiencies that would be unattainable through contractual or

market organization. Recent developments in the live entertainment indust

statements made the management of both Live Nation and Ticketmaster su

proposed merger has the potential to generate the following efficiencies:

. Internet technologies have

presented lucrative opportunities to generate new content, consumer data, and

promotional strategies for fans of live entertainment. Creating the platforms

for these strategies, however, requires investments that are difficult to specify

and monitor by contract. When activities such as these are hard to observe

and are therefore noncontractible, yet are important in creating value, vertical

integration is a common efficiency response. Vertical integrat

could help providers of live entertainment invest in promo

to reduce exces

ion strategies

tion (for example,

s capacity in concerts) and develop Internet content and

marketing strategies.

x Meeting Artist Demands and Market Changes

. The Wall Stree

described the world of live entertainment as “an industry underg

shifts.” Adjusting to a changing market environment is addition

when different players contribute at each stage in the value ch

hallmarks of vertical integration, however, is the ability to p

adaptation. Vertically integrated strategies such as the L

t Journal has

oing seismic

ally difficult

ain. One of the

ursue cooperative

ive Nation-

nize the

odel.

Ticketmaster merger could facilitate innovations that would orga

assorted inputs to live entertainment into an effective business m

x Linking Venues, Entertainers, and Fans.

The many market seg

to produce live entertainment in today’s mostly non-integrated in

distance between artists and their fans, and establishing direct l

between artists and fans is perhaps the most oft-stated justificati

Live Nation-Ticketmaster merger. One of the attributes of v

is the ability to facilitate the sharing of knowledge. It is

artists and

ments required

dustry create

inkages

on for the

ertical integration

thus no surprise that

venues are seeking vertically integrated mechanisms to

tes the creation

for better

t and

merchandise.

Efficiencies such as thes aster merger,

d towards vertical

rged entity would

and that the

merged entity would leverage its market power in one market for anticompetitive gain in

the other. We conclude that neither available evidence nor economic theory support

these fears. To be sure, the merged company would contribute to the changing face of

the live entertainment industry, and industry players will need to continue searching for

innovative business models. But the merger does not change market concentration or

communicate with fans. Moreover, vertical integration facilita

and dissemination of information that could serve as a platform

artist-fan communication and the marketing of additional conten

e are likely to follow from a Live Nation-Ticketm

and we suspect that they also account for the broader industry-wide tren

integration.

Critics of the proposed merger have expressed fears that the me

foreclose entry in both the ticket distribution and the promotion markets,

vii

entry possibilities in the promotion market, and we suspect that the spread of Internet

arket power

s competitive

r to be procompetitive adaptations that the

antitrust laws should encourage and not condemn.

technologies has greatly removed the possibility of obtaining or leveraging m

in the ticket distribution market. To the degree that the merger generate

advantages to the merged firm, these appea

I. Introduction

ent, Inc.

ent. This “merger

tion services and live

about their

ability to compete with Live Nation Entertainment, and public figures—including Bruce

Springsteen, a particular favorite to one of the instant authors—have decried the

tion was

On February 10, 2009, Live Nation, Inc. and Ticketmaster Entertainm

announced their intentions to merge and create Live Nation Entertainm

of equals” would combine the nation’s leaders in ticket distribu

entertainment promotion, creating by all accounts an industry leader in li

entertainment.

Not surprisingly, smaller competitors have raised concerns

economic and artistic consequences of such a combination.

Political atten

Press Release, Live Nation and Ticketmaster Entertainment to Combine in Merger of

Equals to Create World's Premier Live Entertainment Company (Feb. 10,

available at

2009),

&terms= (last

r Consumers

Antitrust,

y, 111th Cong.

z, Co-Owner

z Testimony];

tection, Industry

on, http://www.

tion Merger,

/02/04/bruce-

visited Sept. 9,

ans stating that

as furious as it has

ket situation even

worse for the fan than it is now would be Ticketmaster and Live Nation coming up with a

single system, thereby returning us to a near monopoly situation in music ticketing.”).

Joel Rose, Ticketmaster, Live Nation Merger Investigated, NPR, Feb. 12, 2009,

http://www.npr.org/templates/story/story.php?storyId =100616154 (last visited Sept. 9,

2009) (reporting statement by Senator Charles Schumer, following the Live Nation-

Ticketmaster merger announcement, that , “[t]he last thing we should do is give

Ticketmaster more influence… If these two entities were to merge, control of concert

http://mediacenter.ticketmaster.com/Extranet/

TMPRArticlePressReleases.aspx?id=8080&fragment=0&SearchType=OR

visited Sept. 9, 2009).

See, e.g., The Ticketmaster/Live Nation Merger: What Does it Mean fo

and the Future of the Concert Business: Hearing Before the Subcomm. on

Competition Policy and Consumer Rights of the S. Comm. on the Judiciar

(2009) (written testimony of Jerry Mickelson, Chairman and Executive Vice President of

Jam Productions, Ltd. [hereinafter Mickelson Testimony] and Seth Hurwit

of I.M.P. Productions and 9:30 Club Washington, D.C. [hereinafter Hurwit

National Association of Ticket Brokers, Press Release – Consumer Pro

Groups Joint Statement on Ticketmaster/Live Nation Merger Investigati

natb.org/MediaCenter/index.cfm?article=42.

See Bruce Springsteen "Furious" at Ticketmaster, Rails Against Live Na

ROLLING STONE, http://www.rollingstone.com/rockdaily/index.php/2009

springsteen-furious-at-ticketmaster-rails-against-live-nation-merger/ (last

2009) (publishing letter from Bruce Springsteen and his tour team to f

“[t]he abuse of our fans and our trust by Ticketmaster has made us

made many of you . . . . [T]he one thing that would make the current tic

recently directed at the proposed merger as Senator Herb Kohl, Chairman of the Senate

tant

arney requesting the Antitrust Division to scrutinize the

mer

mon refrain in

esigned to

achieve. The Sherman and Clayton Acts “were enacted for the protection of competition,

irable conduct. As

y the parties to

rger. We

iting in our capacity

as experts in antitrust law and policy, and we are presenting only our own views and not

those of the parties or their counsel. We accordingly apply our analysis relying on

publicly available information and our understanding of the legal and economic

Subcommittee on Antitrust, and Congressman Bill Pascrell each sent letters to Assis

Attorney General Christine V

ger with skepticism and care.

Although such popular backlash against economic giants is a com

American antitrust law, these concerns do not reflect what antitrust law is d

not competitors,” and it is not uncommon for certain resentments and intuitions to

channel anger at what actually is procompetitive and economically des

scholars of antitrust law and institutional economics, we have been asked b

examine the legality and the competitive consequences of the proposed me

should state upfront that, while we are being compensated, we are wr

methodologies that guide merger analysis in the U.S.

by one

, having profound and far-reaching implication for consumers, promoters and

, Subcomm. on Antitrust, Competition

Policy and Consumer Rights to Christine Varney, Assistant Attorney General, Antitrust

Division, United States Dep’t of Justice (July 27, 2009) [hereinafter Kohl Letter]; Letter

from Congressman Bill Pascrell, et. al to Christine A. Varney, Assistant Attorney

General, Antitrust Division, United States Dep’t of Justice (July 27, 2009) [hereinafter

Pascrell Letter].

See Cargill Inc. v. Monfort of Colorado, 479 U.S. 104, 115 (1986); Brunswick Corp.

v. Pueblo Bowl-o-Mat, Inc., 429 U.S. 477, 488 (1977).

venues and representation of artists in those venues would be controlled

organization

artists alike.”).

Letter from Senator Herb Kohl, Chairman

This memorandum first describes the industry structure and emerging trends and

petition. We

nment are

undergoing

ndscape that the

ation, wherein

creators of live entertainment are generating efficiencies and valuable new markets by

ution business,

the proposed

competition.

d proceeding

through calculation (or approximation) of market shares, assessment of possible adverse

effects, prospect of post-merger entry, and consideration of horizontal efficiencies. The

til recently

iewing

vertical integration

on into

Ticketmaster’s use of exclusive contracts. We then discuss the potential for merger-

specific efficiencies and assess arguments made by some of the merger’s critics,

including Senator Kohl and Congressman Pascrell, who have warned that the merger may

have anticompetitive consequences.

then assesses the merger’s likely horizontal and vertical impact on com

observe that both ticket distribution and the entire business of live entertai

technologically dynamic and rapidly evolving industries, and each has been

substantial structural changes in recent years. It is within this changing la

proposed merger reflects a broader industry trend towards vertical integr

interacting directly with fans.

Because Ticketmaster and Live Nation are both in the ticket distrib

with Live Nation having recently entered, there is a horizontal element to

merger, requiring analysis of how it might affect both actual and potential

We conduct a full horizontal analysis, beginning with market definition an

merger also has vertical dimensions, with Live Nation having been un

Ticketmaster’s largest client. We begin a vertical examination by rev

developments in institutional economics and antitrust law regarding

and briefly review the results of an earlier Department of Justice investigati

We do not have access to the same confidential information possessed by the

elieve that a Live

commonly

ribute tickets is

emerged

with platforms that can cater to clients’ specific needs, that there is a competitive bidding

at an increasing

this rapid

bution

likely do not

f market power.

A proper determination of the merger’s horizontal competitive consequences instead

rests, above all, on how easily venues can pursue self-distribution strategies and how

ternatives to a

Although the results of this dispassionate antitrust analysis might be more

supportive of the merger than many critics would hope, we offer this analysis echoing the

Boss’s admonition to seek truth and maintain an appropriate amount of self-doubt.

enforcement agencies or the parties. Our information is thus incomplete and our

conclusions can only be preliminary. Nonetheless, we find reason to b

Nation-Ticketmaster merger is likely to produce certain efficiencies that

accompany vertical integration. We observe that the technology to dist

becoming increasingly widespread, that several technology companies have

process in which these offerings are presented to potential clients, and th

number of venues are now pursuing self-distribution strategies. Given

emergence of new technologies and the evident attractiveness of self-distri

strategies, concentration calculations based on historical market shares

accurately reflect the transaction’s propensity to facilitate the exercise o

many providers of ticket distribution services would be available to offer al

merged Live Nation and Ticketmaster.

II. Background on Live Entertainment: Industry Structure and Trends

Overview

llion in ticket

enerated by

bits, and other

ent industry

also rely on revenue from ancillary products, such as sales of merchandise, concessions,

ing increasingly vertically integrated, most

con umber of different

business

needs, and many of these managers further contract with booking agents to arrange an

agreement with a promoter for individual performances or a tour. The promoter is then

responsible for securing a venue for the performances, and the venue is accompanied by

ip, and band-

h ticket

The market for live entertainment events generated roughly $21 bi

sales in 2007, with $14.3 billion generated by sporting events, $6.7 billion g

concerts, and a small remainder generated by theatre performances, art exhi

events that utilized ticketing services.

Participants in the live entertainm

and music. Although the industry is becom

certs and performances require contractual arrangements among a n

and otherwise independent parties.

Artists contract with promoters to arrange live concert performances. Artists

often contract through a manager that handles the artists’ performance and

other revenue-producing services such as parking, concessions, sponsorsh

related merchandise. The venue, or sometimes the promoter, contracts wit

This section relies heavily on Krueger, infra note 9, and Barclays Cap

70.

The Potential Anticompetitive Effects of the Proposed Combination o

Entertainm

ital, infra note

f Ticketmaster

ent Inc. and Live Nation, Inc., Hearing on Competition in the Ticketing and

Promotion Industry Before the Subcomm. on Courts and Competition Policy of the

House Comm. on the Judiciary, 111 Cong. 7-8 (2009) [hereinafter Doyle Testimony]

(written testimony of Robert W. Doyle, Jr., Partner, Doyle, Barlow & Mazard, PLLC).

Secondary ticket sales, which for 2007 totaled $2.6 billion, are brokered by agents who

purchase performance tickets from the primary sales agents or initial purchasers and then

resell to end-consumers either with a mark-up above the sales price or through auction

mechanisms.

distributors that administer ticket sales to performances through Internet, retail, telephone

and box offi

oters have

ey allocate serial

ments vary

oters, and other

circumstances, the typical contract distributes the revenue generated by concert tours

r a

t for the venue,

itional revenues

with the band

typically recovering around 85%. These contracts allocate other revenues as well, with

the band typically receiving revenue from merchandise sales and the venue receiving

ented with

tist a lump sum

ual revenues,

but

contracts divide such residual revenue between promoters and artists. This means

that promoters and artists tend to share (though not equally) the economic risks and

n venues are

unfilled.

ce sales.

Contracts between artists (via their managers and agents) and prom

been likened to book contracts between authors and publishers in that th

revenues and often involve upfront payments. Although contractual agree

significantly based on the popularity of the band, the record of the prom

sequentially. The first-dollar revenues generated by the performances go to the band in a

“guaranteed advance,” and then subsequent revenue secures for the promote

“guaranteed profit,” which includes expenses (including advertising, ren

labor, etc) and a negotiated profit. The promoter and band then share add

(if any) that exceed both the guaranteed advance and guaranteed profit,

revenue from parking and concessions. Live Nation has recently experim

some “360” contracts with certain marquee performers that give the ar

guarantee for an entire tour, with Live Nation recovering all of the resid

most

benefits of ticketed performances, and both suffer from lost revenue whe

Ethan Smith, Deal to Rock Music Industry, WALL ST. J., Feb. 5, 2009, at B10.

Record labels, such as Warner Music Group and Sony Music Entertainment have also

experimented with 360 deals, though with lesser-known artists. Id.

The contracts between artists and promoters also set the face value of concert

nflation over the

prices on a

arket is evidence

s explanations for

such underpricing), but others describe the secondary market as a more flexible

arying

cterizations of the secondary market, with different characterizations offering

alte y market

Many venues and promoters contract with ticket distribution service companies,

such as Ticketmaster, to handle all their ticketing needs. These contracts tend to be

ervices for a

of time in exchange for the right to charge service fees that are

tickets—i.e., the price of the ticket excluding any service fees, credit card fees, or taxes.

Although face value ticket prices have been rising faster than the rate of i

past decade,

many purchased tickets are later resold at significantly higher

secondary market. Some suggest that the persistence of the secondary m

of underpricing by bands in the primary market (and there are variou

distribution mechanism that can cater to fans who are less able to purchase on the

primary market. Scholars and industry commentators have offered v

chara

rnative implications for how much social value players in the secondar

create.

exclusive agreements, in which the ticket distributor agrees to handle all s

venue for a period

Alan B. Krueger, The Economics of Real Superstars: The Market for

in the Material World, 23 J.L. & ECON. 1, 3 (2005).

See, e.g., id. at 13.

Pascal Courty, Some Economics of Ticket Resale, 17 J. ECON.PERSP.

(suggesting that ticket resale is a function of heterogeneous consum

some consumers prefer to plan ahea

Rock Concerts

85, 86 (2003)

er preferences, in that

d while others prefer delay scheduling decisions,

even if it requires paying higher prices).

Although an assessment of the secondary market is beyond the scope of this paper,

some commentators on the Live Nation-Ticketmaster merger have expressed concern for

how the merger would affect the secondary market. Any such assessment would first

have to articulate what services the secondary market provides, whether those services

enhance social welfare, and whether direct competition between the primary and

secondary markets enhances social welfare.

negotiated between the ticket distributor and the venue. Most such agreements run for

ts expire in any given

ticket

dist e contract.

r venues,

establish whatever putative “processing fees” (alternatively called handling, convenience,

ing fee revenues

re fixed by a

ny cases, the

ue with an

improvements

to the venue or even construction of the venue itself. The upfront payment amounts to a

discount to the effective price the venue pays for distribution.

The allocation of these

fees, along with the length of the contract and any other payments or discounts,

determines the effective price charged by the ticket distributor for the services it provides

has become

several years, with typical contracts lasting at least three and running for an average of

six, and approximately 20 percent of all ticket distribution contrac

year,

and as these contracts approach their expiration dates, competing

ributors place bids with venues to compete for a subsequent exclusiv

These distribution agreements appoint ticket distributors as agents fo

or service fees) that are charged to ticket purchasers, and allocate process

between the distributor and the venue. Such processing fees usually a

schedule agreed to by the parties and can vary from event to event. In ma

ticket distribution agreement will require the distributor to provide the ven

upfront payment, which might help the venue to finance certain physical

to venues. There is evidence that the ticket distribution services industry

See Ticketmaster Corp. v. Tickets.com, Inc., 2003-1 Trade Cas. (CCH)

96,239-40 (C.D. Cal. 2003) (describing process of “

¶74,013, at

arms length” bargaining between

sulting price structure).

See id. at 96,240-41 (reporting that at least 20 percent of such contracts expire each

year).

Id. (describing this bidding process).

This should dispel the misconception, implicit in some critiques of the transaction,

that the ticket distributor is solely responsible for, and retains all of, the processing fees.

Typically, none of the processing fee revenues go to the artists.

See Ticketmaster Corp, 2003-1 Trade Cas. at 96,240.

venues and ticket distribution companies and re

increasingly competitive in recent years, resulting in a larger percentage of the processing

fees (or larger upfront paym

et sales, in

venues have

y operating their own

others or

developed themselves or, more frequently, by licensing software from technology

ple, by selling

er venues may

ands of

particularly

demanding for events where demand exceeds supply, such as playoff sporting events and

marquee concerts). Several technology companies, such as Paciolan (acquired by

, TicketReturn, and

AudienceView, have developed and made available for licensing ticket distribution

n behalf in lieu

offer

ents) allocated to venues and promoters.

There are other mechanisms available to venues to administer tick

addition to outsourcing this task to a distributor. An increasing number of

chosen to “make” instead of “buy” their ticket distribution, either b

ticket distribution services with technology they have purchased from

companies. Many venues have pursued a hybrid strategy, outsourcing their ticket

distribution services while engaging in some self-distribution, for exam

directly to season ticket holders or purchasers at the box office. Larg

demand more sophisticated software than smaller venues, to handle the dem

responding to a high volume of simultaneous ticket purchases (this is

Ticketmaster in 2008), Veritix, Front Gate, ShoWare, Tessitura

technologies that enable individual venues to distribute tickets on their ow

of outsourcing this task to agents such as Ticketmaster.

These firms

The Potential Anticompetitive Effects of the Proposed Combin

Entertainment Inc. and Live Nation, Inc., Hearing on Competition in t

ation of Ticketmaster

he Ticketing and

Promotion Industry Before the Subcomm. on Courts and Competition Policy of the

House Comm. on the Judiciary, 111 Cong. (2009) [hereinafter Froeb Testimony]

(written testimony of Luke Froeb, Oehmig Associate Professor of Management at

Vanderbilt University).

See infra notes 89-102 and accompanying text (listing numerous examples of venues

that have recently taken on the task of distributing their own tickets). See also

Ticketmaster Corp., 2003-1 Trade Cas. at 96,241 (explaining that the option of self-

technologically sophisticated support for venues’ efforts to gather, synthesize, and

info ng strategies.

istribution

rts Enterprises based

n, Comcast-

Spectacor (“Comcast”), and many others currently employ internal mechanisms to

ftware

t it owns and

verse range of

iary of Major

team is permitted

to develop (and many have) their own ticket distribution capabilities. Other venues

pursue hybrid strategies for separate clienteles, such as season ticket holders versus

rts programs

, and the

interpret information about their ticket buyers, fans, and in some cases, donors,

rmation that can facilitate targeted promotion and more rational prici

A growing number of venues have recently internalized their ticket d

operations relying on these technologies. For example, Kroenke Spo

in Denver, numerous universities, International Speedway Corporatio

distribute tickets over the Internet. Live Nation itself recently received a so

license from CTS to power the self-distribution of tickets to venues tha

manages. Moreover, ticket distribution is being implemented through a di

vertical arrangements. Tickets.com, for example, is owned by a subsid

League Baseball and distributes tickets to MLB games, yet each MLB

single-ticket purchasers. For example, many universities with large spo

(including Maryland, Georgia Tech, West Virginia, North Carolina State

ster from

y applying dynamic,

fetime value of

rs and fans. With the use of advanced Veritix applications, clients have

the unique capability of understanding the nature of the true attendees at every event . . . .

Never before has a single ticketing and live entertainment company delivered such

advanced digital ticketing services and tools that empower clients to truly understand

their customers’ habits, improve fan relationships and drive more revenue.”).

See, e.g., infra notes 79-88, 103-110. Note also that the University of Michigan, the

University of Tennessee, and various other universities both self-distribute as well, using

Paciolan technology.

distribution via reliance on outside technology providers prevents Ticketma

exercising market power).

See Veritix, www.veritix.com/ (last visited Sept. 9, 2009) (“B

client-branded technologies—like exclusive digital ticketing delivery tools—Veritix

enables its partners to develop rich behavioral profiles that maximize the li

their ticket buye

University of Virginia) use technologies “powered by Paciolan” to distribute tickets to

ns that providers

well as the many

pportunities that can become available through integrated ticket

dist

The emergence of varied vertical integration strategies also illustrates how much

distribution

homable for

or perhaps

e. The

centrality of Internet sales has called into question the requirement of establishing retail

booths or call centers, both of which were necessary channels for ticket distribution not

reduced the costs and complexity for venues that decide to

distribute their own tickets. Internet technologies have leapfrogged the once-prevalent

self-

the public but maintain separate systems for student ticketing supported by TicketReturn.

These multi-pronged strategies illustrate the many organizational solutio

of live entertainment are currently pursuing for ticket distribution as

ancillary profit o

ribution systems.

the industry has changed in a relatively short period of time. Just eleven years ago,

appellate courts and the enforcement agencies could describe the ticket

industry without mentioning the Internet.

Now, it would be unfat

professional ticket distribution to exclude substantial Internet distribution,

even to have anything but Internet distribution as the primary sales vehicl

long ago, and it has drastically

model of telephone and retail distribution and have enabled many venues to

distribute tickets over the Internet.

See Campos v. Ticketmaster, 140 F.3d 1166 (8th Cir. 1998); Brie

the United States and Federal Trade Commission, Campos v. Ticketmaster, No. 98-127

f Amicus Curiae for

(Dec. 1998).

See United States v. SunGard Data Sys., 172 F. Supp. 2d 172, 188-89 (D.D.C. 2001)

(noting that recent technological advances had significantly reduced the cost of vertical

integration by customers who might otherwise suffer at the hands of a hypothetical

monopolist. Invoking prior decision for the proposition that “the market definition

should be expanded because the ability of a substitute product to compete ‘will be

enhanced in the future because of further technological and market developments.’”).

There are similarly many variations in how promoters administer venues.

y lease them

ith others that

ation also are

booking agents,

where they not only organize and promote live performances but also coordinate and

job of

ances. The

enues and

et distributors. It

also suggests that ticket distributors contract directly with venues, whereas sometimes

they instead contract with promoters. But the chart effectively conveys the several

vertical relationships and multiple inputs that are required to deliver live entertainment

and associated products to consumers.

Promoters may merely rent a site for a particular event, but many promoters have long-

term commitments to certain venues. Promoters may own venues (and ma

occasionally to others) and may have additional exclusive arrangements w

preclude competing promoters from the venue. Promoters such as Live N

providing services that traditionally have remained under the control of

arrange lengthy tours at many venues.

Figure 1, created by Barclay’s Capital, does a reasonably good

characterizing the different contractual relationships that enable live perform

chart understates the variation in both the extent of integration between v

promoters as well as the extent of integration between venues and tick

Parties to Proposed Merger

The parties to this proposed merger, Live Nation and Ticketmas

several of the market segments described above. Ticketmaster Enterta

ter, are leaders in

inment, Inc.,

includes Ticketmaster, “the world’s leading live entertainment ticketing and marketing

company,”

Front Line Management Group, “the world’s leading artist management

a handful of other business company,”

TicketsNow, a secondary ticket seller, and

See About Ticketmaster Entertainment, Inc., http://www.ticketmaster.com/h/about_

us.html?tm_link=tm_homeA_i_abouttm (last visited Sept. 9, 2009).

Id.

interests. Ticketmaster’s central asset, and its primary mechanism for distributing

one and at retail

les account for

age that

l locations (not

including those at the locations of the venues themselves) account for just 16 percent of

overall transactions, a proportion that is fa

et sales than any

(which are based on

gh TicketNews

claims that Web traffic “has been shown to be a good estimator of the number of

transactions made by a seller”

), Ticketmaster.com is the leading seller both among

recorded sales

-scale popular

tickets, is its signature Website, Ticketmaster.com, but it was not always so. Before

Internet commerce became routine, Ticketmaster’s sales over the teleph

outlets dominated the firm’s business. Currently, however, Internet sa

more than 73 percent of the company’s worldwide sales, a growing percent

reflects the rapidly evolving nature of the industry. Sales from 6,700 retai

lling, and its 19 call centers account for 11

percent.

Ticketmaster.com attracts more Web traffic and enjoys more tick

other Internet sales site. According to TicketNews’ power rankings

Web traffic received by a ticket seller’s Web site, not actual sales, thou

primary and overall ticket sellers, with about 60 percent and 31 percent of

respectively.

Some sources indicate that Ticketmaster’s share for large

htm

us y_ra (last visited

Sep

the fo ng power

sco y and combined ticket se

Top Primary Sellers Score Top Combined Sellers Score

1 Ticketmaster.com 60.29 1 Ticketmaster.com 30.68

2 LiveNation.com 16.11 2 StubHub.com 20.14

3 Telecharge.com 4.89 3 LiveNation.com 8.17

4 TicketWeb.com 3.50 4 TicketsNow.com 5.48

5 ETix.com 3.16 5 TicketLiquidator.com 3.33

See Ticketmaster Businesses & Interests, http://www.ticketmaster.com/h/businesse

l (last visited Sept. 9, 2009).

See TicketNews, http://www.ticketnews.com/ticket_ind tr nkings

t. 9, 2009).

For the week ending August 22, 2009, TicketNews reports llowi

res for primar llers:

music events might be even higher, approaching 75-90 percent. Other full service

n outsourced

other, a distinction we find to

be o

es a significant

position in the market for talent management and “is widely regarded as the music

world's m ent com

ticket distributors appear to have much smaller market shares, with most below 5 percent.

Unfortunately, public data regarding ticket sales do not distinguish betwee

distribution, on the one hand, and self-distribution, on the

f great competitive significance, as discussed in Part III, below.

Ticketmaster Entertainment’s Front Line Management occupi

ost powerful artist-managem pany.” Front Line’s roster includes close

erTicke 1.82 2.48

7 Tix.com 1.80 7 TicketCity.com 2.31

1.77

1.60

ts.com 1.16

e self-distributed tickets, a

ave no

rces we consult

lightly different

s from January

thly unique visitors,

audience also

ster’s

/www.nielsen-online.com/emc/btn/0902_

York Times reported

nt of the $21

Stifel Nicolaus suggesting that

ent. Andrew

kin, ed., Ticketmaster Merger Plan Could Touch on Antitrust, N.Y. T

IMES, Feb.

4, 2009, at B3.

Ticketmaster Corp., 2003-1 Trade Cas. at 96,241.

We anticipate that the ultimate fact finder will have superior data that both

distinguishes between outsourced and self-distribution and is not derived from proxy

information, such as TicketNews’s power rankings.

Ethan Smith, Ticketmaster to Acquire Star Power in Azoff Deal, WALL ST. J., Oct. 23,

2008, at B1.

6 BrownPap ts.com 6 Telecharge.com

8 Tickets.com 1.20 8 TicketWeb.com

9 Wantickets.com 0.96 9 ETix.com

10 SmithsTix.com 0.44 10 CoasttoCoastTicke

Id. (last visited Aug. 31, 2009) These figures apparently includ

fact that explains LiveNation.com’s inclusion on the list.

Data sources for ticket sales conflict slightly with each other, and we h

knowledge suggesting that one source is superior to others, but all the sou

generate similar results. For example, Nielsen Online Netview offers a s

comparison of Ticketmaster and LiveNation.com that perhaps indicates th

LiveNation.com has a less significant Web presence. Indeed, its figure

2009 reveal that Ticketmaster attracts roughly 12.1 million mon

almost four times LiveNation.com’s, and 53 percent of LiveNation.com’s

visited Ticketmaster in January 2009, whereas only 14 percent of Ticketma

audience visited LiveNation.com. See http:/

indnews/indnews_0902.htm (last visited Sept. 9, 2009). The New

data from Forrester Research indicating that Ticketmaster had 30 perce

billion events market in 2008 and data from

Ticketmaster’s market share for music concert tickets was closer to 70 perc

Ross Sor

to 200 artists, including many who perform in large venues. Ticketmaster’s purchase of

as an effort “to

ifts.”

The merger of

odel, in which it is integrating its ticketing operations with

oth

Live Nation, Inc. describes itself as “the largest producer of live concerts in the

Live

tes many others in

for 159

of the

o 38 percent

of all live music concerts, although Live Nation owns or operates approximately 90

percent of the outdoor amphitheatres in the US. At congressional hearings, many smaller

es have complained that they cannot offer marquee bands the revenues and venues

them to compete with Live Nation.

Front Line in October 2008 was characterized by The Wall Street Journal

find a new business model for an industry undergoing seismic sh

Ticketmaster Entertainment with Live Nation appears to be a continuation o

Ticketmaster’s new business m

er elements of live entertainment.

world, annually producing over 16,000 concerts for 1,500 artists in 57 countries.”

Nation owns 18 venues in the US, has leases on 70 more, and opera

which it organizes live events.

With its subsidiaries, it has booking rights

venues, with 140 in the US, and has been responsible for organizing many

industry’s largest tours.

Live Nation events represent approximately 35 t

venu

that would enable

Id.

See About Live Nation, http://www.livenation.com/company/getCompanyInfo (last

on of Ticketmaster

ation, Inc., Hearing on Competition in the Ticketing and

try Before the Subcomm. on Courts and Competition Policy of the

House Comm. on the Judiciary, 111 Cong. 13 (2009) [hereinafter Rapino Testimony]

(written testimony of Michael Rapino, President & Chief Executive Officer, Live

Nation).

Live Nation, Inc., Annual Report (Form 10-K) at 1 (Mar. 5, 2009) http://www.sec.

gov/Archives/edgar/data/1335258/000119312509045320/0001193125-09-045320-

index.htm (last visited Sept. 9, 2009).

See supra, note 2.

visited Sept. 9, 2009).

The Potential Anticompetitive Effects of the Proposed Combinati

Entertainment Inc. and Live N

Promotion Indus

Live Nation, like Ticketmaster Entertainment, also has been expanding into

plement a new

n MusicToday, an

e company’s

ge their

eir fan bases and provide a direct connection” in marketing music,

tickets, and merchandise.

ow internally

icketmaster

ive Nation ended

an agreement

with CTS Eventim, the largest ticketing company in Europe, to license CTS ticket

distribution technology. The agreement enabled Live Nation to create a technological

it owns or

t sales

mber 2008 that

it had entered a strategic alliance with venue-operator SMG, currently a Ticketmaster

client. According to public reports, the agreement contemplates that Live Nation will sell

otes

vertically related segments of live entertainment in an apparent effort to im

business model. In 2006, Live Nation acquired a controlling interest i

online store for artist merchandise, and MusicToday became part of th

“Artist Nation” division, which “was formed to partner with artists to mana

diverse rights, grow th

In another recent effort to integrate downstream into consumer sales, and thus to

gain greater contact with consumer sales and preferences, Live Nation n

maintains its own ticket distribution operations. Previously a long-time T

client (and the source of 17% of Ticketmaster’s revenues in 2007), L

most of its dealings with Ticketmaster in December 2008 after it entered

platform so the company could distribute tickets to events at the venues

operates, and the resulting (captive) sales account for all or most of the ticke

currently attributed to Live Nation. Live Nation also announced in Septe

tickets to events at venues operated by SMG, regardless whether Live Nation prom

Press Release, PRNewswire, Live Nation's Artist Nation Division Redefines the

Music Industry with Unified Rights Model, (Oct. 16, 2007),

http://www.prnewswire.co.uk /cgi/news/release?id=210077 (last visited Sept. 9, 2009).

such events, after SMG’s contract with Ticketmaster expires in December, 2010.

master.

Some

tmaster is

other distributors for Ticketmaster’s business as

n contracts expire.

Recent Industry Developments

a live

dustry that is undergoing significant structural change.

Accordingly,

the company’s proposed merger should be viewed within the context of a rapidly shifting

industry landscape.

Currently, LiveNation.com, which distributes tickets to events at Live Nation venues, is

ranked a distant second in Internet primary ticket sales, behind Ticket

industry observers expect Live Nation (if and until its merger with Ticke

consummated) to compete along with

Ticketmaster’s distributio

Both Ticketmaster Entertainment’s and Live Nation’s recent acquisitions, and

their respective pursuits of new business models, appear to be responses to

entertainment in

See Live Nation Signs Ticketing deal with SMG, Reuters News Servi

11, 2008);

ce (September

334097

ecember 31,

t fraction of

ousand tickets

09.”). This is

p to 5 million

te all SMG

ends that most

y SMG are in fact owned by municipalities that employ a “request for

utors and that

tmaster expects to compete for such business even after its current contract with

SMG expires on December 31, 2010. Id. See also Michael Peters, Ticketmaster

Responds to Live Nation/SMG Deal, B

ILLBOARD MAG., Sept. 11, 2008, available at:

http://www.billboard.biz/bbbiz/content_display/industry/e3ia6592177cf3e47ef913e13148

951ec2e (recounting Ticketmaster’s characterization of the deal and SMG’s response).

See supra, note 28.

See supra, note 31 (describing the music world as “an industry undergoing seismic

shifts”).

http://investors.ticketmaster.com/releasedetail.cfm?releaseid=

(detailing Ticketmaster’s exclusive agreements with SMG that expire on D

2010). Ticketmaster has argued that Live Nation would sell only a modes

tickets to SMG-operated venues by late 2009. See id. (“[L]ess than 250 th

(of the 141 million we sold in 2007) are at possible risk with SMG in 20

because, in part, although events at SMG-operated venues account for u

tickets annually, Ticketmaster suggests that the arrangement will not obliga

venues to rely upon Live Nation for ticket distribution. Ticketmaster cont

venues operated b

proposal” or “competitive bidding” process for selecting their ticket distrib

Ticke

Perhaps the most significant development in the music industry, one with effects

t the emergence

oth significantly

es in ticket

l evidence for a

“Bowie hypothesis” that suggests that “concert prices have soared because recording

lementary

nderpriced their

closer to what

is hypothesis,

rt revenues,

fewer tickets sold, larger yet fewer concerts, and fewer sellouts. Krueger additionally

finds evidence for a predicted “superstar” effect that has channeled a disproportionately

larg hese popular

ination, with the

seat.

In other words, data on concert ticket prices suggest that since 1997 concerts are

er than being

become the

well beyond live entertainment, is the Internet-driven spread of digital music technology

and the concomitant rise of music piracy. Alan Krueger has observed tha

of digital music coincided with a rise in concert ticket prices that was b

faster than the rate of inflation and additionally faster than similar increas

prices to movies, theatre, and sporting events.

Krueger finds empirica

artists have seen a large decline in their income from record sales, a comp

product to concerts.” In other words, whereas performers previously u

concert tickets in order to boost their record sales, they now are charging

the market will bear. Consistent with the economic theory underlying th

these ticket price increases have been associated with higher overall conce

e and growing share of concert revenues to the most popular bands. T

and established bands also seem to be engaging in more price discrim

prices for good concert seats rising faster than the price for the average

increasingly being priced like single-market monopoly products, rath

underpriced to boost popularity and record sales. They have accordingly

Krueger, supra note 9, at 7-10.

Id. at 25. Kruger calls this the “Bowie hypothesis” because of David Bowie’s

prescient remark in 2002 that “music itself is going to becomes like running water or

electricity,” which meant that performers “better be prepared for doing a lot of touring

because that’s really the only unique situation that’s going to be left.” Id. at 26.

primary source of revenue for most top artists. In turn, they have unleashed new

bined with the

itable opportunities for promoters who organize

eve

ar pursuit of

t value chain. Live

Nation’s development of MusicToday and Artist Nation reflect these new Internet

ing more

tnessed the

tribution

is spread of

Internet technologies for ticket distribution, along with the growing economic importance

of concerts, has meant that ticket platforms also have become important mediums to

tribution market

has historically taken the form of technological rivalry—Ticketmaster’s displacement of

gical capabilities—

urced distributors or

revenue opportunities for concert promoters and, especially when com

“superstar effect,” have opened prof

nts for the nation’s marquee performers.

Additionally, emerging Internet technologies are permitting a simil

new revenue opportunities in other segments of the live entertainmen

opportunities to sell merchandise and other goods. Meanwhile, Internet technologies—

including technologies to distribute tickets over the Internet—are becom

widespread and commoditized. As noted above, recent years have wi

emergence of several technology companies that license or sell ticketing dis

technologies to venues that choose to distribute their own tickets.

market merchandise and related goods. Consequently, the locus of competition in ticket

distribution appears to be shifting. Whereas competition in the ticket dis

Ticketron as the market leader was largely due to its superior technolo

competition now increasingly revolves around the ability of outso

Marie Connolly & Alan B. Krueger, Rockonomics: The Economics of Popular

Music, at Table 1.1, NBER Working Paper No. W11282 (Apr. 2005).

See infra notes 79-110 and accompanying text (listing numerous examples of venues

that have recently taken on the task of distributing their own tickets). See also

Ticketmaster Corp 2003-1 Trade Cas. at 96,241 (explaining that the option of self-

distribution via reliance on outside technology providers prevents Ticketmaster from

exercising market power).

firms that support self-distribution to assist venues in promoting and marketing content

and related products.

oducts explain

y would

common when

scale market

production. If competition were truly over efficient ticket distribution, then the

Internet ticketing technology and reduced costs in ticket distribution has given

rise self-

rs and artists who

are pursuing new revenue sources by establishing greater contact with fans. For example,

revenue sources that traditionally accompany live entertainment, such as merchandise

s if they maintain

hese profit

g and interpreting

ues and

performers to develop targeted communications and marketing strategies designed to

tainment.

These opportunities are lost if independent ticket distribution firms lack the incentive to

The growing importance of marketable content and ancillary pr

what would otherwise appear to be an economic curiosity. Economic theor

normally predict that the outsourcing of a particular service becomes more

its underlying technology becomes commoditized and thus subject to large-

industry would rely on outsourced services. In contrast to this prediction, however, the

spread of

to greater vertical integration, as venues are now increasingly pursuing

distribution strategies.

This trend in vertical integration is apparently driven by promote

sales and perhaps music sales, might accrue to venues and performer

contact with consumers. The “superstar” effect additionally magnifies t

opportunities, especially for top-name performers. Similarly, acquirin

information about the profile of ticket purchasers facilitates efforts by ven

respond to consumer preferences and maximize fan demand for live enter

See, e.g., OLIVER E. WILLIAMSON,MARKETS &HIERARCHIES (1975). Cf. George J.

Stigler, The Division of Labor is Limited by the Extent of Market, 59 J. POL.ECON. 185

(1951).

develop such profiles and acquire a more thorough understanding, and a broader data set,

about establishing direct linkages to, and

info

e Nation

at it needs to integrate

away from the increasingly competitive market for ticket distribution,

and both

ore

s. This industry-wide shift towards vertical integration, and the

acc ains both parties’

ty of live

concerts and the economic opportunities afforded by vertical integration—not only might

explain Live Nation’s and Ticketmaster’s intentions to merge, but should also inform any

g two sections, we

of performers’ fans. Accordingly, the value of ticket distribution services has becom

less about technological capabilities and more

rmation about, fans and their interests in content.

Such trends comport with public statements by Ticketmaster and Liv

explaining their rationale for the merger. Ticketmaster has noted th

companies have argued that their integration would enable the production of m

content and more product

ompanying opportunities to pursue additional revenue sources, expl

motivations for the transaction.

These industry-wide developments—the growing economic centrali

evaluation of how the merger might affect competition. In the followin

Veritix.com, http://www.veritix.com (last visited Sept. 9, 2009) (descri

Veritix self-ticketing technology allows venues to “develop rich behavioral

maximize the lifetime value of their ticket buyers and their fans” an

truly understand their customers’ habits, improve fan relationships, and

revenue”).

See

bing how

profiles that

d “empower clients to

drive more

Peter Kafka, Ticketmaster CEO Irving Azoff: How to Make Money While Music

Becomes “Demonetized,” A

LL THINGS DIGITAL, May 27, 2009, http://d7.allthingsd.com/

20090527/irving-azoff/?mod=ATD_search (last visited Sept. 9, 2009) (reporting that

Ticketmaster’s merger with Live Nation is motivated by Ticketmaster’s need to integrate

with promotion and marketing, without which Ticketmaster’s survival would be

jeopardized, and quoting Azoff as saying “[a]ny of you guys can write a program that

does what Ticketmaster does. . . . I’ve been there a couple of months and I have gripes

myself.”).

evaluate the probable consequences of this transaction on horizontal and vertical

competition while keeping these industry developments in mind.

III. Analysis of Merger’s Horizontal Consequences

An analysis of the horizontal consequences of the Live Nation-Tick

merger begins with identifying the market segments in which both c

although both firms have core businesses that lie primarily in specific segm

now participates in multiple levels of the industry. Live Nation currently en

promotion of concerts and other events, the operation and management o

forms of merchandising, and the distribution of primary tickets. Ticketm

engages in the distribution of primary ticke

etmaster

ompanies compete.

The production of live entertainment involves a number of market segments, and

ents, each

gages in the

f venues, various

aster meanwhile

ts, the secondary market for ticket sales, the

licensing of technology that facilitates the self-distribution of tickets for a venue’s own

events, and the management of entertainment talent.

into direct

e Nation, which

nts

distribution

services to other venues. Accordingly, the parties now appear to be competing for

contracts to provide ticket distribution services to venues that choose not to distribute

their own tickets. This recent competition has led some to criticize the transaction on the

ground that it purportedly reduces present and future competition in a market for ticket

Consequently, most of both firms’ business activities do not come

competition with each other. However, on January 1 of this year, Liv

was previously an important Ticketmaster client, began to self-distribute tickets to eve

at venues it owns or operates and has also sought to offer outsourced ticket

distribution services, and it impels us to examine the horizontal consequences of this

transaction.

are numbers

of the industry

sales that this

uggests that

technological innovations have made this a very dynamic and rapidly changing market, in

ion for events it

nt or future

defined market for ticket distribution.

Con t would have a

minimal effect on the market’s competitiveness.

The remainder of this section employs the law of horizontal mergers as the

osed

ent agencies to

ascertain the competitive impact of a transaction upon “any line of commerce or [line of]

alysis generally

market

By most publicly available accounts, Ticketmaster and Live Nation

one and two in ticket sales,

with combined sales approaching 80 percent

total.

Some critics decry the purported reduction of competition in such

merger would entail. A careful analysis of this market segment, however, s

which new products are facilitating vertical integration and easing entry. At the sam

time, Live Nation’s ticket sales, nearly all of which entail distribut

promotes or venues it owns or operates, significantly overstate its prese

competitive significance in any properly

sequently, an appropriate evaluation of the merger suggests that i

framework for evaluating the probable horizontal consequences of the prop

transaction. Section 7 of the Clayton Act requires courts and enforcem

activity affecting commerce in any section of the country.”

Such an an

involves the following steps: 1) defining the relevant market, 2) identifying

Live Nation is primarily considered a large ticket distributor on account of its self-

distribution of its own tickets. This qualification becomes meaningful in a horizontal

merger analysis, see infra notes 129-130 and accompanying text.

See, e.g., supra note 27 (attributing 60.3% and 16.1% of the market for ticket sales to

Ticketmaster, and Live Nation, respectively). Of course, TicketNews scores are only

approximations of relative sales.

15 U.S.C. §18 (2006).

participants and calculating market shares, 3) analyzing “other factors” that bear upon

ining possibilities for

itive effects, and 5)

hether the merger might create horizontal efficiencies.

f the country,”

courts and the enforcement agencies must determine the relevant product market(s) and

enforcement agencies, bear the burden of pleading and

pro . Failure to discharge these burdens

doo

The market definition inquiry does not involve identifying “markets” in a

colloquial sense or even in the sense that market participants or industry observers may

igorous process

nse that firms

whether a transaction will produce anticompetitive effects; 4) exam

entry in the market, assuming the possibility of anticompet

determining w

rket Definition

To ascertain the relevant “line[s] of commerce” and “section[s] o

geographic market(s) in which the merging parties participate. Plaintiffs challenging a

merger, including the federal

ving the relevant product and geographic markets

ms any challenge to a merger.

1. General Standards Governing Market Definition

employ the term.

Instead, market definition in the merger context is a r

designed to identify markets that are “economically meaningful” in the se

See 1992 Department of Justice and Federal Trade Commission Horizo

Guidelines, § 0.2 [hereinafter 1992 Joint Merger Guidelines].

Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).

ntal Merger

7) (government

United States v.

of market definition a

predicate” for a successful challenge to a merger); id. at 1152-68 (rejecting

challenge because of failure to establish a relevant market); SunGard, 172 F. Supp. 2d at

181-93 (rejecting government challenge to a merger because of failure to prove relevant

market in which transaction would result in significant concentration).

2006 Department of Justice and Federal Trade Commission Commentary on the

Horizontal Merger Guidelines, 11-12 (Mar. 2006) [hereinafter 2006 Commentary on

Horizontal Merger Guidelines] (“Industry Usage of the Word ‘Market’ is Not

Controlling”).

See United States v. Engelhard Corp., 126 F.3d 1302 (11th Cir. 199

challenge to merger fails for lack of proof of relevant product market);

Oracle Corp., 331 F. Supp. 2d 1098, 1110 (N.D. Ca. 2004) (proof

“necessary

participating in them could exercise market power. If the participants in a proposed

market, then

ingful and cannot serve as the basis for

an e

ious factors

(“practical indicia”) purportedly bearing upon the “reasonable interchangeability” of

ore

f courts.

cluding but

not necessarily lim with respect to

market power

market could not exercise market power, even when acting in concert, because a

sufficient number of consumers would turn to products outside the putative

the “market” in question is not economically mean

valuation of the competitive effects of the transaction.

At one time, market definition involved the consideration of var

potential substitutes. More recently, the enforcement agencies have articulated a m

rigorous analytic process that has been embraced by an increasing number o

Under this approach, the agencies seek to identify a category of products, in

ited to the type of products sold by the merging parties,

which a hypothetical monopolist of such products could profitably exercise

Joint Merger Guidelines, supra note 51, § 1.0 (“The analytic process

on] ensures

text of

e exercise of

bearing upon

ent of Justice

also Oracle

ct market is

Joint Merger

pp. 2d at 181-82

, since the

necessarily impact any analysis of the anticompetitive effects of

the transaction"; invoking both “reasonable interchangeability” test and agencies’

hypothetical monopolist test); FTC v. Swedish Match N. Am., Inc., 131 F. Supp. 2d 151,

159-60 (D.D.C. 2000) (“practical indicia” are “not necessarily criteria to be rigidly

applied” in a “talismanic fashion”; explaining that 1992 Joint Merger Guidelines’

hypothetical monopolist test is one method for evaluating “price sensitivity” and thus

reasonable interchangeability) (quotations omitted); FTC v. Cardinal Health, 12 F. Supp.

2d 34, 45, n.8 (D.D.C. 1998).

See 1992

described in this section [describing the standards governing market definiti

that the Agency evaluates the likely competitive impact of a merger within the con

economically meaningful markets, i.e., markets that could be subject to th

market power.”).

See id., § 1.0.

See Brown Shoe, 370 U.S. at 325 (identifying various “practical indicia”

reasonable interchangeability and thus market definition).

See 1992 Joint Merger Guidelines, supra note 51, § 1.0; 1984 Departm

Merger Guidelines, §§ 2.1, 2.11 [hereinafter 1984 Merger Guidelines]. See

Corp., 331 F. Supp. 2d at 1110-13 (explaining that proof of relevant produ

“necessary predicate” for successful merger challenge and invoking

Guidelines’ hypothetical monopolist methodology); SunGard, 172 F. Su

(market definition is the “key to the ultimate resolution of this type of case

scope of the market will

because an insufficient numbers of purchasers would avail themselves of substitutes for

the category of products in question.

ncy to identify

rovisional market.

d sometimes

promoters) to provide ticketing services for a particular event or series of events.

ase their tickets from these distributors,

who chasers of the ticket

by a

sumer, is often

central to a proper application of the antitrust laws. Numerous decisions in the merger

context have properly determined that business firms, and not individual downstream

hypothetical

oduct to ultimate

consumers.

Moreover, the Eighth Circuit Court of Appeals, on precisely this question

in a previous suit involving Ticketmaster, ruled that venues, and not fans, are the initial

viders of

2. Identification of Relevant Consumers

Applying the hypothetical monopolist test requires the court or age

the class of purchasers of the product or products that comprise the p

As is detailed in Part II, ticket distributors are retained by venues (an

Accordingly, even though concert goers purch

act as agents for venues, it is the venues who are the true pur

distribution services.

Understanding this arrangement, in which a distributor is retained

manufacturer or service provider and acts as a liaison to the ultimate con

purchasers, are the relevant consumers for the purpose of conducting the

monopolist test, even if these businesses themselves sell a resulting pr

and direct purchasers of services provided by Ticketmaster and similar pro

See 1992 Joint Merger Guidelines, supra note 51, §§ 1.0, 1.11.

See, e.g., Cardinal Health, Inc., 12 F. Supp. 2d at 36 (defining market of wholesale

warehousing and distribution of pharmaceuticals sold to retail pharmacies); Grumman

Corp. v. LTV Corp., 665 F.2d 10, 13-14 (2d Cir. 1981) (approving product market of

“major airframe subassemblies” sold to manufacturers of civilian aircraft).

ticketing distribution services. Additionally, the Department of Justice and the Federal

l purchasers of

is an

er, the venues

he typical contract

provides that the venue is the ‘Principal’ who grants to Ticketmaster a right ‘to sell

Principal’s agent

ines, the

whether a price increase by all ticket distributors

wou heir purchases of ticket distribution services so as

to r

3. Geographic and Product Markets

Given the portability of Internet software and the ease with which ticket

distributors can provide services throughout the country, there are unlikely to be any

geographic boundaries to this market. In a related determination in 2003, before Internet

ketmaster

Trade Commission jointly filed a Supreme Court brief in 1999 endorsing an Eighth

Circuit determination that venues, and not consumers, are the actua

Ticketmaster’s ticket distribution services.

The joint DOJ and FTC brief

instructive interpretation of the economic relationship between Ticketmast

it serves, and fans of live entertainment. As the brief pointed out, “[t]

[tickets] as the .’” Thus, we think it likely that, for purposes of

applying the hypothetical monopolist test articulated by the Merger Guidel

Department of Justice will examine

ld cause enough venues to reduce t

ender such a price increase unprofitable.

software became as widespread as it is now, a federal court found that Tic

See Campos, 140 F.3d at 1171-72 .

See Brief Amicus Curiae for the United States and the Federal Trade Co

Campos v. Ticketmaster, N

mmission in

o. 98-127 (Dec. 1998).

See id. at 9 (quoting plaintiff’s complaint) (emphasis in the brief). Like the Eighth

Circuit’s opinion, the joint brief of the DOJ and the FTC treated the allegations in the

plaintiff’s complaint about the nature of the relationship between venues and ticket

distribution companies as true, given the procedural posture of the case, i.e., appellate

review of a decision to grant a motion to dismiss. We have no reason to believe that

these particular allegations were not well-grounded in facts about the industry at the time

or that these facts have changed.

competed in markets throughout the United States, and a court is likely to similarly

define the market now.

sers of ticket

acities of 20,000,

smaller

hrough any

combination of four different channels: the Internet, telephone call centers, sales from the

oters’ needs for

erent

tain ticket

ets

from their own box office and making group sales and/or selling season tickets.

Moreover, some venues and promoters rely upon distributors to support their box office,

to handle large

volumes of ticket orders in a short period of time, e.g., shortly after the announcement of

ssist in

utors to assist

Determining the product market is a more difficult task. Purcha

distribution services range from large stadiums and arenas, with cap

50,000 or even 100,000 fans, to amphitheaters and local clubs with much

capacities.

In addition, ticket distributors can supply distribution efforts t

venue’s box office, and retail distribution outlets, the latter of which are generally located

in shopping malls or large department stores. Venues’ and prom

distribution services can vary significantly, and they also can purchase diff

assortments of services. For example, it is common for venues to re

distributors while also engaging in some self-distribution by, for instance, selling tick

season ticket, and group sales operations, while others require distributors

a popular concert or playoff schedule, and others expect distributors to a

promoting the venue’s events. Finally, venues increasingly expect distrib

See Ticketmaster Corp., 2003-1 Trade Cas. at 96,241 (determining that

compete i

the parties

n markets throughout the nation).

For example, Ticketmaster’s current clients include both Madison Square Garden,

“the world’s most famous arena,” http://www.thegarden.com/, and Mercury Lounge, a

Bowery Ballroom venue in New York City with a capacity of only 575. See Ben Sisario,

A Small Strategy for Selling Concerts, N.Y. TIMES, June 7, 2001, available at

http://www.nytimes.com/2007/06/07/arts/music/07bowe.html?pagewanted=all

See Ticketmaster Corp., 2003-1 Trade Cas. at 96,239-40 (describing these channels of

distribution).

the venue in managing customer-related information, so as to better gauge fans’

eaningfully

vidually negotiated

sion of ticket

ue and presumably the particularized service expectations for each particular

ven

A prior court defined the product market (though only for the sake of argument)

thus separating distribution services for large venues from those designed for small ones.

ment needs of

preferences for live entertainment and ancillary products. Such services m

facilitate the venue’s subsequent targeted promotional efforts. Indi

contracts between ticket distributors and venues memorialize the divi

reven

ue.

as “the market for full service ticket distribution services purchased by major venues,”

Observers supporting this distinction claim that the technological and equip

Indeed, we understand that in many cases loyal fans of particular enter

learn that th

tainers never

motional efforts. See

ry,

ns given by fans

auged

se fans who it

e infra Part

ptation and

ntracts with

d distributor).

t relevant

FTC v. PPG

gainst merger

craft

d as “major

eing and McDonnell Douglas).

In a different context, an economist has drawn a distinction between firms able to serve

large and small clients, on the one hand, and those only able to serve smaller clients, on

the other. See Mary W. Sullivan, The Effect of the Big Eight Accounting Mergers on the

Market for Audit Services, 45 J.L. & E

CON. 375, 396 (2002) (building model based upon

distinction between “Big Eight” accounting firms, on the one hand, and so-called “fringe”

firms, on the other); id. at 386 (“Fringe firms are reasonable alternatives to the Big Eight

for small audit buyers, and the fringe firms are fairly competitive.”).

eir favorite performer is “in town,” despite vigorous pro

Michael Rapino, Transcript of Hearing of Senate Committee on the Judicia

Subcommittee on Antitrust, Competition Policy, and Consumer Rights, C

Transcriptions, LLC (Feb. 24, 2009) (testifying that one of the top reaso

for not attending a concert is that they were unaware of the performance).

Note in this connection that a venue can reduce its expenses on broad-g

advertising and prom d thootion if it can instead target its advertising towar

believes will have a particular interest in attending the event in question. Se

IV.3 (discussing efficiencies—specifically, the benefits of coordinated ada

targeted promotion—that often accompany vertical integration).

Ticketmaster Corp., 2003-1 Trade Cas. at 96,240 (explaining that co

venues are individually negotiated and allocate revenues between venue an

See id. at 96,239-40 (describing and adopting for the sake of argumen

product market including only ticket distribution for large venues). See also

Indus., 798 F.2d 1500 (D.C. Cir. 1986) (affirming preliminary injunction a

between firms that produced glass and acrylic transparencies for sales to air

manufacturers); Grumman Corp., 665 F.2d at 13 (approving market define

airframe assemblies for large civilian aircraft” sold to Bo

large venues are qualitatively distinct from those of smaller venues, so firms perfectly

uch a

size of venues

t otherwise similar

tively

straightforward Internet-based ticket distribution, without complex ancillary services,

ch as gate

ities and other

sis of information

large and small,

serve numerous purposes and promoters organize a diversity of offerings. Popular

venues may host concerts, sporting events, auto shows, and horse shows within a short

period of time. As such, the venue might require a complex bundle of ticket distribution

services for some events, and a much more modest bundle for others. And, in fact, some

capable of serving the needs of small venues may not be able to serve those of larger

ones. At the same time, no precedent or economic principle compels s

distinction. Moreover, any effort to define a relevant market around the

may fail to capture and account for the great diversity of needs tha

venues might possess. For instance, some large venues may require rela

while other large or even medium-sized venues may require (or believe they require)

ticket distribution in several channels, along with multifaceted services su

control, management of season ticket sales, donor management (for univers

non-profit organizations), event promotion, and collection and synthe

about fans. Adding to this complexity is the fact that many venues, both

As one neutral analyst has put it,

Large events are typically associated with ticket sales through multiple

distribution channels, including the Internet, call centers, retail outlets, and the

box office. Considering the potential for a high level of demand for tickets in a

short period of time for large events, ticket distribution service providers must be

able to handle large volumes and coordinate the distribution of tickets through all

channels using complicated software and centralized inventory systems.

See Evren Ergin, Barclays Capital, Ticketmaster-Live Nation Antitrust Analysis, Apr.

30, 2009, at 5.

venues employ different ticket distribution companies to service different event or fan

catego

with any

tion firms but not

other,

ous facets of the

distribution task themselves. Thus, a legal challenge to this transaction could fail for

rs.

We may,

bution services

to large venues and promoters, or at least large venues and promoters with sophisticated

needs, offer a distinctive set of services that constitute an identifiable product market.

ries. Promoters also have varying needs for a similarly diverse set of events.

We therefore believe it would be difficult to articulate and prove

precision the existence of a market that includes some ticket distribu

others. There is no clear boundary separating one category of firm from an

particularly in light of the ability of venues and promoters to take on vari

this reason alone, i.e., the inability to conceive of, articulate, and prove a tractable

distinction between some providers of ticket distribution services and othe

however, assume for the sake of argument that firms providing ticket distri

For example, the American Airlines Center in Dallas, TX uses Tick

concert and NBA Mavericks tickets, but Tickets.com to distribute N

etmaster to sell

HL Stars tickets. See

ter.com/events-and-tickets/purchase_tickets.php (last

lub/page.htm?

etmaster.com/artist/

self-

ower

provide

hile other universities may obtain such

See Oracle Corp., 331 F. Supp. 2d at 1159 (finding that government did not carry its

burden of proving market definition because government’s efforts to “delineate” the

boundaries of the product market could “[not] be expressed in terms to make a judgment

of the court have meaning” and noting that plaintiff’s expert witness had conceded that

there was no “quantitative metric” distinguishing products within the market from those

outside it); SunGard, 172 F. Supp. 2d at 181-83.

See Ticketmaster Corp. 2003-1 Trade Cas. at 96,239-40.

http://www.americanairlinescen

visited Sept. 9, 2009) and NHL.COM Network, http://stars.nhl.com/c

id=39263 (last visited Sept. 9, 2009) ; Ticketmaster, http://www.tick

805932?brand=mavericks (last visited Sept. 9, 2009). Moreover, as noted in Part II,

several universities employ Paciolan software to power most of their ticket

distribution while at the same time relying upon TicketReturn software to p

distribution of tickets to their students.

For instance, some universities might require their ticket distributor to

integrated donor management software, w

software from independent vendors.

4. Applying the SSNIP Test

n services are

sake of market

“large

se” (SSNIP) in

se would be

profitable in light of that reaction. Key to answering this question is the recognition that

reliance on

e licensed

have developed

ies that have enabled

many venues to engage in Internet-based self distribution. These developments reflect

the rapid spread of Internet-based technologies that can handle rigorous ticketing

, reduce the minimum viable scale of ticket distribution, and facilitate the

real bution. Courts

cise of market

eir own tickets,

rom third parties, has

Assuming the demands of large purchasers of ticket distributio

distinct from their smaller counterparts, the operative inquiry for the

definition focuses on how such purchasers, what we will provisionally call

venues,” would react to a “small but significant and non-transitory increa

the price of outsourced ticket distribution services, and whether this increa

venues have increasingly turned to self-distributing tickets to their own events in lieu

outsourcing this task to agents such as Ticketmaster. Some have done so in

software they have purchased or developed; more frequently such firms hav

such software from third parties. Indeed, in recent years numerous firms

and offered for licensing Internet-based ticket distribution technolog

demands

ization of the sort of efficiencies not available from outsourced distri

have recognized that such technological dynamism should inform the exer

definition.

Accordingly, the number of large venues that now distribute th

with apparent success, relying upon software they own or license f

See SunGard, 172 F. Supp. 2d at 189 (noting that recent technological advances had

significantly reduced the cost of vertical integration by customers who might otherwise

suffer at the hands of a hypothetical monopolist, and invoking prior decision for the

proposition that “the market definition should be expanded because the ability of a

substitute product to compete ‘will be enhanced in the future because of further

technological and market developments.’”).

grown significantly. Indeed, one might even say that such self-distribution has become

enues do not

ovide numerous

and, in the

highlight some of the firms that provide technological support for such vertical

inte

a software

n Europe, to

anages. As

phasize, Live Nation previously outsourced its

hem. Relying

for events at

2. The Houston-Toyota Center, owned by the Houston Rockets of the National

er of ticket

vents at the

erly a client of

an industry trend. Ironically, many of these venues were at one time clients of

Ticketmaster, thereby suggesting that the firm’s exclusive contracts with v

have the exclusionary impact that some have suggested.

Below we pr

examples of venues that have taken on the task of distributing their tickets

process,

gration.

1. Live Nation is itself a prime example, having recently received

license from CTS, the leading distributor of entertainment tickets i

power its self-distribution of tickets to venues that it owns and m

opponents of the transaction em

ticket distribution services, relying upon Ticketmaster to provide t

upon this license, Live Nation now distributes millions of tickets

venues that it owns or manages.

Basketball Association, has partnered with Veritix, another develop

distribution software, to facilitate self-distribution of tickets for e

venue, which seats up to 19,000 fans for basketball.

Form

See Ticketmaster Corp., 2003-1 Trade Cas. at 96,239 (noting that g

portion of the [ticket distribution] market where the arena itself does its

“there is a growin

own ticketing

.”).

ous examples of

s. at 96,239

ution).

exclusive

arketplace).

offers professional sports teams, universities

ary ticketing

ting database.

ures a paperless ticketing technology. The company seems capable of handling

large venues as it has had a partnership with the Houston Toyota Center since 2003.”).

See Toyota Houston Center, http://www.houstontoyotacenter.com/ about/atozguide.php

(last visited June 4, 2009) (reporting center’s seating capacity as “18,300 for basketball,

17,800 for hockey [and] up to 19,000 for concerts”);

http://www.nba.com/games/20090514/LALHOU/boxscore.html (last visited June 4,

2009) (reporting attendance of 18,501 in Houston playoff game against the Los Angeles

Lakers).

business using software sold or leased to it by Paciolan . . . or [the plaintiff]

See infra notes 79-111110 and accompanying text (discussing vari

recent vertical integration by venues); Ticketmaster Corp., 2003-1 Trad. Ca

(discussing “growing portion of the market” characterized by self-distrib

See infra notes 169-171 and accompanying text (explaining that such

agreements do not prevent competitive entry into the ticket distribution m

See Ergin, supra note 70, at 10 (“Veritix

and entertainment venues an electronic, integrated, primary and second

platform for managing ticket inventory and creat[ing] a relationship marke

It feat

Ticketmaster,

the Houston-Toyota Center also frequently ho

entertainers, including, in 2009 alone, Beyonce, Brittany Spea

Brothers, Pink, Eric Clapton and Steve Winwood, Elton John & Bil

Nickelback, Celtic Woman, and Fleetwood Mac.

sts premier

rs, the Jonas

ly Joel,

ritix recently entered into a

(capacity up to

8,000), and

“Denver’s best

tly announced

e company’s

TicketHorse,

isted above,

Village of

ement thus covers distribution of tickets for the

Denver Nuggets, the Colorado Rapids (professional soccer), Colorado Avalanche

(National Hockey League), the Colorado Crush (Arena Football), and Colorado

Mammoth (National Lacrosse League).

similar agreement with Salt Lake City’s EnergySolutions Arena.

3. Kroenke Sports Enterprises owns Denver’s Pepsi Center arena

20,000), Dick’s Sporting Goods Park Stadium (capacity just over 1

Denver’s Paramount Theatre, capacity 1,870, which bills itself as

intimate concert venue.”

In July, 2008, Kroenke and Veritix join

a partnership whereby the latter would “provide technology for th

newly established ticketing services organization, TicketHorse.”

in turn, provides ticket distribution services for each of the venues l

previously served by Ticketmaster, as well as Infinity Park, in the

Glendale, Colorado.

The arrang

See Jeff Bounds & Jennifer Dawson, Vertical Alliance in Houston Arena Deal,

/dallas/stories

oyota/Vertical

e of the Internet has opened the door for

”). Vertical

isited Sept. 9,

tor.com/tix/

olutions

om/Veritix-

29188

pt. 9, 2009)

is 18,129 for

ith a center

goodspark.com/Stadium/Facts.aspx (last visited Sept.

-seat home stadium of

rounding 24-field, fully lit soccer complex.”); Paramount

Theater, http://www.paramountdenver.com/ (last visited Sept. 9, 2009).

See Press Release, Veritix, Kroenke Sports Enterprises to Move Ticketing Operations

for Pepsi Center, Denver Nuggets and Colorado Avalanche to Veritix in 2009 (July 30,

0208), available at http://www.veritix.com/news/Veritix_&_Kroenke_Sports_Extend_

Partnership.pdf (last visited Sept.9, 2009).

See TicketHorse, http://www.tickethorse.com/ (last visited Sept. 9, 2009).

Bounds & Dawson, supra note 81.

ALLAS BUS. J., Sept. 19, 2003, available at: http://dallas.bizjournals.com

/2003/09/22/story3.html (last visited Sept.9, 2009) (describing Houston-T

Alliance deal as example of how “the emergenc

smaller rivals, some of whom are quietly stealing Ticketmaster’s business.

Alliance, it should be noted, is the predecessor of Veritix.

See supra note 80, http://www.houstontoyotacenter.com/events (last v

2009) (listing June through October 2009 events); http://www.ticketliquida

toyota-center-vv-tickets.aspx (last visited June 19, 2009).

See Veritix Signs Exclusive Ticketing Contract for Utah Jazz, EnergyS

Arena, TicketNews (Sept. 9, 2009), available at: http://www.ticketnews.c

signs-exclusive-ticketing-contract-for-Utah-Jazz-EnergySolutions-Arena99

See NBA, http//www.nba.com/nuggets/contact/faqs.html (last visited Se

(“The capacity of the Pepsi Center for a Nuggets game is 19,155. Capacity

Avalanche games and 17,600 for concerts with an end stage and 20,100 w

stage.”); http://www.dicksssporting

9, 2009) (“Dicks Sporting Goods Park is comprised of the 18,000

the Colorado Rapids and its sur

4. Kroenke recently announced that it is partnering with AEG, a

and manager of venues, to manage the Broomfield event center in B

Colorado.

leading owner

roomfield,

00 for hockey

n the partners and

icketmaster as the

olutions to power

hicago’s Grant

ront Gate also

e Live,

ltipurpose

ment with

laced Ticketmaster as the distributor of tickets to Warehouse Live

events at their

AudienceView

to power its self-distribution of tickets to a wide variety of cultural and sporting

, which has a

s Arena,

h enablement

The venue is publicly owned and has a capacity of 6,0

and basketball and 7,500 for concerts.

If negotiations betwee

the city council are successful, TicketHorse will replace T

distributor of the venue’s tickets.

5. Lollapalooza relies upon software licensed from Front Gate S

its self-distribution of tickets to the event, which takes place at C

Park In 2008, the event drew 225,000 fans over three days.

recently announced a “long-term ticket selling deal” with Warehous

capacity 1,500, which bills itself as “one of Houston’s signature mu

facilities.”

Warehouse Live is affiliated with AEG, and the agree

Front Gate disp

events. According to one neutral source, Front Gate Software powers the

platforms of 1,788 venues that have chosen to distribute tickets for

respective venues.

6. The University of Minnesota relies upon software produced by

events, including Big Ten football games at its TCF Bank Stadium

capacity of 50,000, and basketball and hockey games at its William

which has a capacity of 16,000.

AudienceView also provides suc

See Michael Davidson, Broomfield Event Center to Get N

ROOMFIELD ENTERPRISE, Aug. 26, 2009, available at

ew Management, Name,

ldenterprise.

MFIELD ENTERPRISE, Apr. 14,

13140448.

b (last visited

lds of Pop, Rock

se Live,

www.warehouselive.com/index.php?content=home&section=1 (last visited [date]).

09) (listing

rammed by AEG.”).

See Ergin, supra note 70. It should be noted that Front Gate also maintains a

ticketing agency for venues that outsource their ticket distribution services. See Front

Gate Tickets, http://www.frontgatetickets.com/ (last visited Sept.9, 2009). Front Gate's

clients include the Austin Aztecs, who play at Nelson Field, which has a seating capacity

of 8,800.

See Audience View Ticketing, http://www.audienceview.com/customers/?t=6 (last

visited Sept. 9, 2009) (listing customers to include the University of Minnesota);

http://www.broomfie

com/ci_13204115.

See By the Numbers: Broomfield Event Center, BROO

2008, available at http://www.broomfieldenterprise.com/ci_

See Front Gate Tickets, http://pages.exacttarget.com/page.aspx?QS

c76003443ff9837dd4009700e262f1050f35994654bc7b06880d920a5ce5f38

Sept. 9, 2009); Greg Kot, Turn It Up: A Guided Tour Through the Wor

and Wrap, C . T ., Nov. 6, 2008, available at http://leisureblogs.

HI RIB

chicagotribune.com/turn_it_up/2008/11/parks-aim-to-ex.html.

See Front Gate Solutions, http://www.frontgatesolutions.com/index

.php?content=news&item=65 (last visited Sept.9, 2009). See also Warehou

http://

See AEG Live, http://aeglive.com/aboutus.php (last visited Sept.9, 20

Warehouse Live as one of the venues “owned, managed and/or prog

software to several dozen other clients, including Dartmouth Col

Film Festival, the New York Red Bulls of Major League Soccer,

Liverpool Arena in Liverpool, England.

lege, the Tribeca

and the ACC

lue Jays of

ceView to

The Blue Jays play their home games at

racing

143,000

e venues host

R and the

and American Motor

eritix that helped

com.

its “New Era”

by Comcast,

ketball and

by premier

he Wachovia

c Clapton, Keith

Urban, Miley Cyrus, the Jonas Brothers, Bruce Springsteen, and Pink.

New Era

ution of tickets by various

nal Speedway

ominion

Similarly, the Toronto B

Major League Baseball also employ software licensed from Audien

power their self-distribution of tickets.

Rogers Centre, which seats over 49,000 fans.

7. International Speedway Corporation (ISC), owns 13 automobile

speedways, including tracks with capacities of 168,000 (Daytona),

(Talladega), 137,000 (Michigan), and 107,000 (Richmond).

Thes

numerous events, including automobile races sanctioned by NASCA

lis Racing League (IRL), as well as the Grand AmIndianapo

Association leagues. Recently, ISC purchased software from V

create a ticket distribution platform centered around Racetickets.

8. Comcast Corporation employs Paciolan software to power

Ticketing Subsidiary, which distributes tickets for venues owned

such as Philadelphia’s Wachovia Center, which seats 21,600 for bas

18,000 for hockey.

The Center also hosts numerous concerts

entertainers. In 2009 alone the following artists performed at t

Center or are scheduled to do so later in the year: Beyonce, Eri

also provides technological support for the distrib

venues not owned by Comcast, including the Dover Internatio

(135,000); the Portland Rose Quarter, and Constant Center at Old D

rchase of

University of

Bank Stadium, http://stadium.gophersports.com/

t_the_stadium.html (last visited Sept. 9, 2009) (report that capacity of new TCF

of Minnesota

last visited

s 14,625).

er_list.asp (last

mlb_2790 (last

oviding information about Rogers Centre and its environs).

See ISC: A Motorsports Entertainment Co., http://ir.iscmotorsports.com/phoenix.

zhtml?c=113983&p=irol-facilities (last visited Sept. 9, 2009).

See Online Seats.com, http://www.onlineseats.com/venue/wachovia-center.htm (last

visited Sept. 9, 2009). Comcast also owned the famous Philadelphia Spectrum, which

was recently demolished.

See Wachovia Center, http://www.wachoviacenter.com/events/calendar_calendar

View.asp (last visited Sept. 9, 2009).

University of Minnesota, Buy Tickets, https://www.tickets.umn.edu/

AudienceViewSplash/ (last visited Sept. 9, 2009) (“Shopping Cart for pu

Minnesota Gophers tickets states Powered By AudienceView Ticketing”) ;

Minnesota’s TCF

abou

Bank stadium, will be 50,000) ; GopherSports.com: The Official Website

Athletics, www.gophersports.com/ViewArticle.dbml?&ATCLID=310102 (

Sept. 9, 2009) (reporting current capacity of Williams basketball arena a

See supra note 93 at http://www.audienceview.com/customers/custom

visited Sept. 9, 2009).

Id.

See ESPN, http://sports.espn.go.com/travel/stadium/index?stadium=

visited Sept. 9, 2009) (page pr

University (capacity of 9,500).

100

The Rose Quarter is hom

which seats over 20,000 fans for basketball, and is home to the Port

Trailblazers and Portland Winterhawks. The venue also hosts nume

and other events, including, in 2009 alone: The Jonas Brothers, Ke

Dylan, Earth Wind and Fire, Killers, Miley Cyrus, Billy Joel and Elton Joh

Ringling Brothers and Barnum and Bailey Circus, religious f

e to the Rose Garden,

land

rous concerts

ith Urban, Bob

n, the

igure Joel Osteen,

ers.

101

, then an

tribution of

tribute tickets

nment venues that outsource their ticket

to distribute

cketReturn to power

ham Bulls, Akron

, Memphis

ges and

bution,

ersity, Liberty

n Francisco, and

eturn platform

University of South Carolina, Georgia Tech, North Carolina State, and West

Virginia University. Like Veritix, Front Gate, AudienceView and others,

ncluding the

and their entertainment

Disney on Ice, and “So You Think You Can Dance,” among oth

9. In 2005 Major League Baseball (“MLB”) purchased Tickets.com

independent distributor of tickets. Tickets.com now powers the dis

tickets for several major league baseball teams and continues to dis

for numerous other sports and entertai

distribution. The firm also offers its technology to venues that wish

their tickets in house.

102

10. More than fifty minor league baseball teams rely upon Ti

their self-distribution of tickets.

103

These teams include the Dur

Racers, Kansas City T-Bones, Lexington Legends, Toledo Mudhens

Redbirds, Charlotte Knights, and San Jose Giants. Numerous colle

universities also rely upon TicketReturn to support their ticket distri

including Appalachian State University, Western Carolina Univ

University, Christopher Newport University, the University of Sa

William and Mary.

104

Several larger institutions employ a TicketR

to power their student ticketing operations, including the University of Maryland,

TicketReturn offers a wide variety of support to venues it serves, i

ability to gather and synthesize data about individual fans

preferences.

105

100

See New Era Ticketing, http://www.neweratickets.com/our-clients/o

list/

ur-clients/client-

Office

rter,

last visited Sept. 9,

at Safeway

me/TicketOutlets/tabid/58/Default.aspx (last visited Sept. 9,

is powered by “CoxTix,” the

wered by Paciolan and New Era Tickets.”

101

See id. at http://www.rosequarter.com/ (last visited Sept. 9, 2009).

102

See http://provenue.tickets.com/US/ticketing_solutions/index.shtml (discussing

“ProvenueMax, an in- house licensed ticketing system”).

103

See https://www.ticketreturn.com/prod2/customerspro.asp (listing the firm’s

Professional Sports clients).

104

See https://www.ticketreturn.com/prod2/customerscollege.asp.

105

TicketReturn’s Website claims:

(last visited Sept.9, 2009); http://www.rosequarter.com/Home/Box

/tabid/56/Default.aspx (last visited Sept. 9, 2009); Rose Qua

http://www.rosequarter.com/Home/BoxOffice/tabid/56/Default.aspx (

2009). The Rose Quarter also lists fifty-six retail ticket outlets, most of them

Supermarkets in the Portland area. See id. at

www.rosequarter.com/Ho

2009). Although the Constant Center advertises that it

website indicates that it is “Po

11. Over a decade ago the New York Metropolitan Opera develope

launched its “Impresario” ticketing system de novo.

d and

ly thereafter the Met

ogy to

n-profit

ding the Met,

nedy Center, the

ive foreign

nternet

t)” as well as

memberships,

utive information

irm apparently

site includes a

’s attributes and capabilities to those of for-profit

icant client, the

ch had distributed

ion before it, is

n ives to Ticketmaster. The report indicates that AEG is

considering both distributors, such as Veritix and Tickets.com, as well as self-

that AEG has

et for ticket

106

Short

renamed the system “Tessitura” and formed a non-profit Limited Liability

Company to own the new ticketing platform and license the technol

others.

107

By 2002, the LLC had evolved into a licensee-owned no

corporation formed under Delaware law, with owner-licensees inclu

the Chicago Lyric Opera, the San Francisco Symphony, the Ken

Seattle and Santa Fe Operas and nineteen other licensees. Today the entity boasts

188 licensees and at least 80 sublicenses in the United States and f

countries. The Tessitura system promises to provide “full no fee I

transactional capability for ticketing (including select your own sea

support for “customer relationship management,” “fundraising,

sponsorships and contributions,” and “flexible reporting, exec

and analysis tools.”

108

Although a “not for profit” enterprise, the f

considers itself a rival to commercial ticketing firms, as its Web

chart comparing Tessitura

technology firms.

109

Indeed, just recently, the firm won a signif

Tennessee Performing Arts Center, from Ticketmaster, whi

tickets for the Center for 29 years.

110

12. Bloomberg.com recently reported that AEG, like Live Nat

exploring alter at

distribution strategies. One industry analyst said of AEG’s move

“the ability to instantly become a viable competitor” in the mark

distribution services.

111

stems put you

ch with customers and their ticket usage habits. Sell and deliver print at

; Automate the return of unused seats;

ce history;

Automate attendance

inate audits of paper ticket stubs;

iles for every

a timeline of

107

See id.

108

See http://www.tessituranetwork.com/Products/Software.aspx.

109

See http://www.tessituranetwork.com/en/Products/~/media/Public Site/Tessitura

Software Industry Comparison_2008.ashx.

110

See TPAC Dumps Ticketmaster After 29 Years, NASHVILLE BUS. J., July 1, 2009,

available at: http://nashville.bizjournals.com/nashville/stories/2009/06/29/daily23.html.

111

Ticketmaster Client AEG Said to Explore new Partner, Bloomberg.com, Nov. 2, 2009.

TicketReturn’s exclusive barcoding and Fanticket management

in tou

home e-tickets online; Target no-shows

Reward your most loyal fans; E-mail customers based on attendan

Develop qualified sales leads from pass-along ticket users;

counts with real time admission reporting; Elim

Track ticket ownership changes online; Create ticket usage prof

customer.

See https://www.ticketreturn.com/prod2/customers.html.

106

See http://www.tessituranetwork.com/About/Timeline.aspx (providing

the development and widespread adoption of the Tessitura ticketing platform

technological and commercial feasibility of a venue, whether large or mo

vertically integrate into the self-provision of ticket distribution services.

trend toward such integration strongly suggests that combining previously s

functions produces efficiencies not realizable through market contracting

there any reason to believe that these examples are idiosyncratic or that th

These various examples—and there are more—demonstrate, at a minimum, the

re modest, to

112

Indeed, the

eparate

113

Nor is

e capacity for

such integration in the future is somehow limited. The necessary technology for such

d that self-

iscipline any

possible exercise of market power by firms like Ticketmaster.

115

We would expect this

xt few years.

114

integration is more available now than just a few years ago, when a federal court—in the

course of rejecting an antitrust suit against Ticketmaster—all but predicte

distribution would take on increased significance in the near future and d

trend to accelerate as more ticket distribution contracts expire over the ne

112

See Ticketmaster Corp. v. Tickets.com, Inc., 2003-1 Trade Cas. (CCH)

96,241 (C.D. Cal. 2003) (explaining that numerous colleges and universiti

self-distribution).

113

See infra Part IV.3.

114

See generally SunGard, 172 F. Supp. at 190-91 (asking whether custo

would switch in response to a hypothetical price increase were truly represe

custo

¶ 74,013, at

es rely upon

mers who

ntative of the

most of the

e in this

, 850 F.2d

espond to SSNPI

tive customers

115

It should be noted in this connection that contracts between software providers and

venues are generally non-exclusive, i.e., do not preclude the licensor from licensing the

same ticket distribution platform to other venues or, for that matter, preclude the venue

from employing that platform to distribute tickets to events at other venues. For instance,

New Era Tickets, a subsidiary of Comcast, both relies upon Paciolan technology to

distribute tickets for events at Comcast-owned venues and, in addition, licenses the same

technology to unrelated venues to facilitate their self-distribution. In any event, for the

mer population as a whole); Cardinal Health, 12 F. Supp. 2d at 48-50 (holding that

vertical integration would not defeat a hypothetical price increase because

hypothetical monopolist’s customers did not have the capacity to integrat

fashion); FTC v. Owens-Illinois, Inc., 681 F. Supp. 27, 37, vacated as moot

694 (D.D.C 1988) (fact that a trivial number of customers would not r

did not establish relevant product market where numerous more representa

would).

Indeed, the line between “outsourced” distribution, by agents such as

instance,

e of its rivals retain

ox office

edly engaged in

self-distribution nonetheless still outsource key aspects of the distribution function to

116

erous firms —

h venue a

h venue selects

dle that may be

h firms also

offer software options that empower venues—whether engaged in outsourcing or self-

distribution—to gather and synthesize data for the purpose of better understanding the

y services.

s agent, as

managing

self-distribution

Ticketmaster, on the one hand, and “self distribution” supported and enabled by

independent technology providers, on the other, is by no means bright. For

many venues that “outsource” ticket distribution to Ticketmaster or on

the right and ability to distribute some tickets themselves, often from the b

and/or to season ticket holders. At the same time, many venues purport

third parties, including technology providers themselves. In truth, num

Ticketmaster, Tickets.com, Veritix, AudienceView, and others—offer eac

cafeteria-style menu of distribution options and related services, and eac

the particular bundle that suits its needs at the time of contracting, a bun

adjusted as a venue’s needs and/or capabilities evolve. Moreover, all suc

characteristics of fans and the preferences for entertainment and ancillar

Importantly, whether a firm offers to distribute tickets as a venue’

Ticketmaster does, or instead enable a venue to distribute tickets itself, both services

achieve the same functions of distributing tickets to fans and collecting and

related information. It is therefore not surprising that firms that enable

e, as do the Guidelines, that self-distribution is

infinitely available at current (per-merger) prices. See Joint Merger Guidelines § 1.11, n.

116

For instance, firms such as Veritix that focus on facilitating self-distribution also

provide server capacity for venues that choose not to own and operate such capacity

themselves. Such firms may also provide or recommend equipment that scans barcoded

tickets, for instance, as well as assistance processing credit card transactions. See

https://www.ticketreturn.com/prod2/faq.html.

purpose of market definition, we assum

effectively bid against firms like Ticketmaster when a distribution contract has expired

117

The overlap

ble self

distribution

er, itself militates in favor of a finding that both firms occupy the

sam

To be sure, it is unlikely that all venues would pursue self-distribution strategies

riety of

and not-for-

f those venues

we are not

aware of any particular types or categories of venue for which such integration would be

especially difficult or costly, thereby exposing such venues to selective price increases by

a hypothetical monopolist.

119

As a result, substitution by a even a modest number of

hereby

and a venue is tempted to forgo outsourcing in favor of self-distribution.

and real world rivalry between the services provided by “firms that ena

distribution,” on the one hand, and those that provide “outsourced ticket

services,” on the oth

e product market.

118

in response to a SSNIP by a hypothetical monopolist of outsourced ticket distribution

services. Nonetheless, the successful vertical integration by such a wide va

venues—large, small, and medium, sports, musical and mixed use, profit

profit—suggests that the option is in fact a realistic one for most if not all o

that still outsource the distribution of most or all of their tickets. Moreover,

venues would render a small but significant price increase unprofitable, t

protecting any venues that may be less price sensitive.

120

117

See Ticketmaster, 2003-1 Trade Cas. at 96,241 (finding that “virtually all long term

rms that

ketmaster that

118

Id. at 96,241-42.

119

Cf. Cardinal Health, 12 F. Supp. 2d at 36-49 (finding that prospect of self-

distribution by large drug store chains would not protect small “Mom and Pop” chains

from a hypothesized price increase).

120

See United States v. Engelhard Corp., 126 F.3d 1302, 1306 (11th Cir. 1997) (“[I]t is

possible for only a few customers who switch to alternatives to make the price increase

unprofitable. . . .”); SunGard, 172 F. Supp. 2d at 193 (finding broader market even

contracts are awarded after some form of bidding competition” and that fi

support and enable self-distribution are a “viable option” to firms like Tic

distribute tickets for firms that choose to outsource this task).

Equally important, antitrust principles and legal authority readily support the

vertical integration

e task of

reaten to do so as a

market

definition itself, various courts have recognized that “captive production” resulting from

vertical integration can be a clos d might thereby

122

ces” must

include not only outsourced ticket distribution services, such as those provided by

uld provide

treatment of such integration as a close substitute for outsourced ticket distribution

services. More than two decades ago, a leading jurist explained that “

is a universal feature of economic life,” and that firms frequently take on th

distributing their own product to displace an inefficient supplier or th

means of holding down the cost of outsourced inputs.

121

When it comes to

e substitute for outsourced production an

prevent independent producers from exercising market power.

Therefore, a properly defined market for “ticket distribution servi

Ticketmaster and similar firms, but also distribution services that venues co

vernment] is

698, 710 (7th Cir.

cturer to take

laces

t if they charge too

. R.H. Coase,

uction of

e included in

ork in-house in

172 (asking

crease were

customer population as a whole); Cardinal Health, 12 Supp. 2d

at 48 (declining to include potential captive production in the relevant market because

most customers would not, in fact, view such vertical integration as a plausible substitute

for their current practice of purchasing supplies directly from wholesalers). See also

Geraldine Alpert & Howard P. Kitt, Is Structure All?, 53 A

NTITRUST L.J. 255, 266-67

(1984) (contending that “do-it-yourself” or “make or buy” options are often plausible

substitutes for purchase of putative product on the open market and thus can be properly

included in the relevant market).

though “the demand of some customers [for the product identified by the go

inelastic”).

121

See generally Jack Walters & Sons v. Morton Bldg., Inc., 737 F.2d

1984) (Posner, J.) (“A common type of vertical integration is for a manufa

over the distribution of his product.… [T]he option of vertical integration p

competitive pressure on the firm’s suppliers and buyers, who know tha

much for their services the firm may decide to perform them itself.”). Cf

The Nature of the Firm, 4 E

CONOMICA 381 (1932).

122

Grumman Corp., 665 F.2d at 13-14 (holding that potential captive prod

aircraft subassemblies by Boeing and McDonald Douglas would properly b

relevant product market if such manufacturers would in fact bring such w

response to significant price increases by subcontractors); SunGard., at

whether customers who would switch in response to a hypothetical price in

truly representative of the

for themselves by licensing or purchasing technology from firms that support such

123

port for such

ult for any

category of

rice increase.

Unlike some industries, the ticket distribution industry is not characterized by network

at could hamper

arket is simply not

culation of market

sha

Identification of Market Participants and Calculation of Market Shares

Following the definition of the relevant market, a challenger to a merger must also

rket shares of

ster, Etix.com, Tickets.com, Frontgate,

distribution. Given the current dynamic and rapidly evolving technological landscape,

including the ready availability of licensing technology and other sup

vertical integration, one might therefore conclude that it would be diffic

hypothetical monopolist of outsourced ticket distribution services for any

venues or promoters to profitably maintain a significant, non-transitory p

effects that could entrench or protect a dominant firm in the face of vertical integration by

venues. Nor are we aware of any plausible exclusionary practices th

competitive challenges to incumbents.

124

Perhaps, then, the m

“monopolizeable,” and our inquiry need not proceed to the cal

res.

125

We nonetheless proceed with the complete horizontal analysis.

establish which firms participate in that relevant market and the relative ma

such firms.

126

Obviously firms such as Ticketma

123

Testimony of Luke Froeb before the House Subcommittee on Courts

Policy, 5-6 (February 26, 2009) (treating firms such as Veritix and Audienc

participants in the same product market as Ticketmaster).

124

See infra notes 169-171 and accompanying text (explaining why exclus

arrangements between venues and ticket providers are not plaus

and Competition

eView as

ive

ible methods of raising

125

See, e.g., United States v. Microsoft, 253 F.3d 34, 82-84 (D.C. Cir. 2001) (en banc)

(per curiam) (ease of entry into browser market suggests the market is not

monopolizeable and supracompetitive pricing is not possible, even for a provider with an

extremely large market share). Cf. United States v. Gen. Dynamics, 415 U.S. 486, 510-

511 (1974) (declining to entertain government’s appeal of district court’s product market

definition because government’s case would fail under any such definition).

126

See 1992 Joint Merger Guidelines, supra note 51, § 1.3.

rivals’ costs and entrenching monopoly).

Metrotix.com, TicketWeb.com, and Tele-charge, participate in the market as defined

ents and

127

with other

ple,

g needs of

t would be

providing ticket distribution services for venues that chose to outsource such distribution.

amic responses to price changes by venues that

hav the potential growth

of vertical

integration: (1) integration that has already occurred before the transaction that is under

review, such as the numerous examples listed above, and (2) integration that might

potentially take place after such a transaction. Ironically, venues that engaged in self-

ive Nation,

because they each distribute tickets on behalf of venues that host large ev

outsource ticket distribution. It is also clear that any venues that contract

venues to provide ticket distribution services also participate in the market. For exam

should Live Nation’s own ticket distribution operation service the ticketin

venues managed by SMG, it would clearly be a market participant because i

The more difficult market share determinations involve assessing the extent of self-

ticketing before the transaction, the dyn

e already vertically integrated into ticket distribution, as well as

of additional self-ticketing in the near future.

128

It is useful at the outset to distinguish between two categories

distribution before this transaction, including those owned or operated by L

127

Some of these firms, of course, also distribute tickets for venues they o

but this fact does not militate against their inclusion in the market for ticket dis

services to the extent that they do, in fact, perform this function.

128

We pause here to note that our conclusions regarding market de

wn or control,

tribution

finition, the

identification of participants in the relevant market, and the (unlikely) prospect of

coordinated or unilateral anticompetitive effects do not turn on any determination that

technology companies that support self-distribution are properly treated as market

participants within the taxonomy employed by current merger law. Whether or not such

firms are technically “in” the relevant product market, they certainly provide inputs that

facilitate and encourage venues’ self-distribution of tickets, and such self-distribution

appears to be a reasonable substitute for outsourced ticket distribution services.

are arguably less likely to be meaningful participants in the relevant market than those

venues that m

internal or captive

at it is

e market in

er.

129

Moreover,

merger law has long recognized that a firm’s nominal output of a product does not by

ere,

s by contract,

arketplace has no competitive significance, and a merger

of t the nominal

Here “captive production” generally consists of a venue’s distribution of tickets to

owns or

oduction to a

ight so integrate in the future.

As the enforcement agencies have themselves emphasized,

production should be included in the relevant market only to the extent th

economically meaningful, that is, could alter the competitive dynamics of th

response to collusive behavior or a monopolistic exercise of market pow

itself establish the magnitude of the firm’s competitive significance. For instance, wh

before a merger, a firm’s future output is committed to particular customer

removal of that firm from the m

hat firm with another does not, in fact, reduce competition, regardless of

level of concentration that results.

130

its own events, or a promoter’s distribution of tickets to events at venues it

operates. It is not obvious how venues or promoters could divert such pr

129

See 1992 Joint Merger Guidelines, §1.31 (vertically-integrated fi

as participants in relevant market “to the extent that such inclusion a

their competitive significance in the relevant market before the merger”);

Federal Trade Commission, FTC v. Cardinal Health, Nos. 98-595 & 98-59

(same). See also 1984 Department of Justice Merger Guidelines, § 2.23

vertically integrated firms would shift internal production to relevan

participate via

rms will be included

ccurately reflects

Brief for the

6, at 14-15

(asking whether

t market or

downstream competition in response to a small but significant non-

ede the

believe that § 2.23 of

the 1984 Guidelines states the appropriate methodology for determining whether in fact

captive production is properly considered part of the relevant market. Indeed, the 1992

Joint Merger Guidelines employ such an analysis to identify firms outside the relevant

market that may “participate through supply responses.” See 1992 Joint Merger

Guidelines § 1.32.

130

See Gen. Dynamics, 415 U.S. at 501-510; Ball Mem’l Hosp. v. Mut. Hosp. Ins. Co.,

784 F.2d 1325, 1336 (7th Cir. 1985) (explaining rationale of Gen. Dynamics).

transitory price increase). The 1992 Horizontal Merger Guidelines supers

corresponding portions of the 1984 Guidelines. Nonetheless, we

properly defined distribution market in response to a hypothesized price increase (the

ket!).

131

Thus,

is reserved by

petitive

tsource. Live

Nation, of course, is one firm with significant “captive production” of ticket distribution

y of the data

ting

se by venues the

e in any economically

meaningful sense to third-party venues that seek to outsource the distribution of their

tickets, it is unlikely to significantly affect the relevant market and thus is not a

meaningful substitute for venues that outsource their ticket distribution.

133

Vertically integrated firms could, however, participate in the relevant market if

they would respond to a price increas

Houston Rockets, for instance, will not suspend their home games so the Houston Toyota

Center can somehow divert its self-distribution of tickets to the open mar

because the pre-merger captive production of ticket distribution services

definition for venues themselves, such production does not have the same com

significance as services available for purchase by venues that choose to ou

services, given that it distributes tickets for events at the numerous venues it owns or

operates as well as events it promotes at independent venues. Indeed, man

purporting to show that Live Nation is a significant participant in the ticke

distribution market in fact refer to such captive production for internal u

firm owns or manages.

132

Because such production is not availabl

e imposed by a hypothetical monopolist of

131

By contrast, one can certainly imagine, say, a vertically-integrated power company

that relies on plants fueled by natural gas and coal reducing its reliance on gas and

diverting such gas into the “spot” market in response to a significant price increase in that

market.

132

See Kohl Letter, supra note 4 (asserting that Live Nation “start[ed] a ticketing

business to compete with Ticketmaster (and as a result sold 5.8 million tickets in the first

four months of 2009). If the merger occurs, this direct competition will be lost.”).

133

Cf. Gen. Dynamics, 415 U.S. 486.

outsourced ticket distribution services. For instance, such firms could expand the

135

and their own

necessarily entail increased

pro

e in one or

both of these ways, then it would be appropriate to attribute such incremental, expanded

rket

ting a firm’s captive

ution to a

responses is

ppears to be the

motivation behind the vertical integration that has already occurred. As explained

previously, such integration appears to be an effort by promoters, venues, and artists to

for instance,

tainment

134

scope of their distribution activities beyond their own venues, taking on the task of

distributing tickets for other venues as well. Such firms could also exp

downstream output of entertainment services, which would

duction of inputs to such services, including ticket distribution.

136

If vertically integrated firms respond to a hypothetical price increas

output to the relevant market for the purpose of determining overall ma

concentration. However, such a finding might still not justify attribu

production to that market due to that firm’s inability to “sell” its self-distrib

venue that outsources it ticket distribution. Although either of these

possible, we think they are unlikely for any given venue in light of what a

capture efficiencies from marketing live entertainment directly to fans, by,

facilitating the production and synthesis of information about fans’ enter

134

See SunGard, 172 F. Supp. 2d at 186, n.14, quoting P. AREEDA, IIA AN

¶ 535e (1995) (citing 1992 Joint Merger Guidelines, § 1.31); 1984 Departm

Merger Guidelines, §2.23 (“Captive production and consumption of the relevant product

TITRUST LAW,

ent of Justice

arket supply and demand. Such

e of two ways.

lternatively,

of their production but increase their production of

both the relevant product and products in which the relevant product is embodied. Either

kind of supply response could frustrate collusion by firms currently selling the relevant

product.”).

135

See 1984 Department of Justice Merger Guidelines, § 2.23.

136

See 1984 Department of Justice Merger Guidelines,§ 2.23. See generally 1992 Joint

Merger Guidelines, § 1.11 (treating presence of downstream competition as a factor that

can defeat a hypothetical price increase).

by vertically integrated firms are part of the overall m

firms may respond to an increase in the price of the relevant product in on

They may begin selling the relevant product [i.e., in the open market], or a

they may continue to consume all

preferences. It does not appear to be an independent effort to profit from ticket

such

Live Nation, have

ey are not

. It seems

ent if the cost

of ticket distribution changes, especially because artists, more than venues or promoters,

r ticket

ase by vertically

by meriting

ination to

make for any particular venue, especially because the trend towards vertical integration

appears to be accelerating independent of any hypothesized price increase (and, in fact, in

138

ntify with

certainty the many firms that supply the technology and other inputs necessary to

ate, Showare,

g in this list

distribution in the same way that Ticketmaster or Tickets.com seek to profit from

distribution. While there may be vertically integrated firms that, like

endeavored to provide ticket distribution services for venues to which th

otherwise related, these firms appear to be the exception rather than the rule

similarly unlikely that venues would increase their output of live entertainm

are the primary drivers of output.

More significant is whether venues that currently outsource thei

distribution services would respond to a small but significant price incre

integrating and taking on the task of distributing tickets themselves, there

treatment as participants in the relevant market.

137

This is a difficult determ

the face of reportedly steadily declining prices). We can, however, ide

vertically integrate in this manner, such as Veritix, AudienceView, Front G

TicketReturn, Tessitura, and Tickets.com (Paciolan would otherwise belon

137

See 1992 Joint Merger Guidelines, § 1.31. See also SunGard, 172 F. Supp. 2d at 187

(“[W]hat is significant is not whether the companies that currently use inter

have the capacity to e

nal solutions

nter the market as vendors for others, but whether the customers

that currently use [outsourced] hotsites would switch to an internal hotsite [i.e., vertically

integrate] in response to a SSNIP.”). Some may argue that such firms are better

characterized as “firms that participate through supply responses.” See 1992 Joint

Merger Guidelines, §§ 1.31, 1.321 & 1.322.

138

Alpert & Kitt, supra note 122, at 266-67 (noting difficulty of calculating market

concentration where “do-it-yourself” production is a meaningful substitute for purchasing

input on the open market).

but is now owned by Ticketmaster). These firms could be included as participants in the

uestion is whether the

as become, and as

determine the exact degree of additional post-

merger vertical integration with any certainty.

cludes

New Era’s

has a market

en hands-down

s ion services—or,

more precisely, the quantity of tickets distributed—have been used by opponents of the

proposed merger to assert that Ticketmaster dominates the relevant market.

140

But

arguably such data do not accurately reflect the underlying competitive and economic

realities in the industry. Both courts and the antitrust enforcement agencies have

repeatedly stated that reliance upon historical unit sales is merely one of several methods

relevant product market as proxies for anticipated increases in vertical integration and

assign them market shares accordingly. Here again the central q

actual or potential captive production would be forthcoming in response to

hypothesized price increase.

139

As widespread as vertical integration h

likely as it is to spread, it is difficult to

Within these parameters, a current market share calculation—whether it in

all or part or none of Live Nation’s captive production, whether it includes

growth outside Comcast venues, etc.—would indicate that Ticketmaster

share far larger than its rivals. There is no doubt that Ticketmaster has be

the industry leader, and historical measures of sales of ticket di tribut

139

See 1984 Department of Justice Merger Guidelines, § 2.23 (asking whether vertically

integrated firms would shift internal production to relevant market or participate via

downstream competition in response to a small but significant non-transitory price

increase). See also 1992 Joint Merger Guidelines § 1.32 (articulating similar test for

identifying “firms that participate [in the relevant market] through supply responses”).

140

See supra note 28 with TicketNews scores and other data sources approximating

market shares.

of determining firms’ respective shares of the relevant market and may, in fact, result in a

misleading a

141

lf-distribution.

ution software (a

historical sales

Perhaps most

important, the competitive bidding process that venues use to solicit competition

focused competition

ircumstances such

, the merger

e on historical

market shares and instead rely upon the capacity of individual firms to provide the

s expressly

ssessment of the competitive consequences of a transaction.

To begin with, historical sales ignore venues’ ability to switch to se

Moreover, because the marginal costs of licensing Internet ticket distrib

non-rival good) is obviously low, participants’ capacity and not their

provides a more accurate estimate of overall market concentration.

following the expiration of distribution contracts creates moments of

that dull any advantages of incumbency or historical market share. In c

as these, in which all market participants have equal access to buyers

guidelines adopted by the antitrust enforcement agencies abjure relianc

service in question as the appropriate market shares.

142

These Guideline

141

Joint Merger Guidelines § 1.521 ("[R]ecent or ongoing changes in the m

indicate that the current market share of a particular firm either unders

the firm's future competitive significance. . . . The Agency will consider rea

predictable effects of recent or ongoing changes in market conditions in

[historical] market concentration and market share data. "); Brown Shoe C

States, 370 U.S. 294, 322 n.38 (1962) ("Statistics reflecting the shar

controlled by the industry leaders and the parties to the merger are, o

index of market power; but only a further examination of the particular m

structure, history and probable future – ca

arket may

tates or overstates

sonably

interpreting

o. v. United

es of the market

f course, the primary

arket – its

n provide the appropriate setting for judging the

84 U.S. Dist.

e capacity" as "the

appropriate statistical basis for measurement of future industry competitive

performance"); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109, 128 (D.D.C. 2004)

(identifying reserves, loadout capacity, and production and practical capacity "all

informative to some degree, yet . . . imperfect" indicators of future ability to compete,"

and therefore, considering all measures together)..

142

See 1992 Joint Merger Guidelines, § 1.41 (“Calculating Market Shares: General

Approach”); id. (“Physical capacity or reserves generally will be used [to measure

probable anticompetitive effect of the merger."); FTC v. Bass Bros., 19

LEXIS 16122, *19 (N.D. Ohio June 6, 1984) (identifying "productiv

provide that, “[w]here all firms have, on a forward-looking basis, an equal likelihood of

143

ent of Justice

ee bidders

tmaster to provide

ch as Veritix,

AudienceView, Frontgate, Tessitura, TicketReturn, and others can bid for the right to

HI much lower

ived from historical market shares, regardless of the number of venues that

wou summation of

Consequently, the identification of market participants and market shares brings

the inquiry back to the original question of how easily a venue can acquire the Internet

ndustry suggest that

vertical integration is becoming both increasingly inexpensive and otherwise desirable,

uch a strategy.

both to

securing sales, the Agency will assign firms equal shares.” The Departm

has even gone so far as to argue—successfully—that the presence of thr

suffices to ensure sufficient competition for the right to publish a state’s official legal

reports.

144

Firms such as Tickets.com can bid head to head with Ticke

outsourced ticket distribution services,

145

and at the same time, firms su

provide technology that enables a venue to forgo outsourcing in favor of self-distribution.

As a result, a capacity-based approach in this context would result in an H

than that der

ld, in fact, vertically integrate into ticket distribution shortly after con

this transaction.

technology required to self-distribute tickets. Developments in the i

such that venues could counteract any monopoly pricing by pursuing s

Ultimately, assessing the practicability of vertical integration is necessary

.”). See also

oint Merger Guidelines, § 1.41 (“Calculating Market Shares: General

Approach”), n. 15.

144

See The Thomson Corp., 949 F. Supp. 907, 919 (approving consent decree that did

not order divestiture of publishing contracts for the state of Washington because presence

of two other publishers capable of bidding for the right to publish Washington official

reports would, as the government argued, “ensure vigorous competition in Washington”).

145

See Ticketmaster Corp. v. Tickets.com, 2003-1 Trade Cas. ¶ 74,013, at 96,240-41

(C.D. Cal.2003).

concentration] if it is these measures that most effectively distinguish firms

United States v. Thomson Corp., 949 F. Supp. 907, 919 (D.D.C. 1996).

143

See 1992 J

properly define the market and to arrive at meaningful measures of market concentration

Pot

ated that calculation

uences.

146

The

enforcement agencies in particular have recently cautioned against “undue emphasis on

erger analysis

147

ach, enshrined in

forcement

otential post-

merger harms: “coordinated interaction,” whereby remaining participants in the industry

hereby the

and power.

ential Adverse Effects

Both courts and the enforcement agencies have repeatedly st

of market shares and resulting concentration ratios is simply a “starting point” in

determining whether a merger will likely result in anticompetitive conseq

market share and concentration statistics” as opposed to application of m

“as an integrated whole to case-specific facts.” That integrated appro

the Horizontal Merger Guidelines and employed by both courts and the en

agencies, involves investigating and assessing the risk of two particular p

“pursue parallel policies of mutual advantage,”

148

and “unilateral effects,” w

146

See Joint Merger Guidelines, § 2.0 (“Other things being equal, market

affects the likelihood that one firm, or a small group of firms, could successfully exercise

market power. . . . However, market share and concentration data pro

starting point for analyzing the competitive impact of a merger.”); Depart

and Federal Trade Commission Commentary on Joint Merger Guid

agencies have often not challenged mergers involving market shares an

that fall outside the [safe harbors] set forth in Guidelines § 1.51. This d

concentration

vide only the

ment of Justice

elines, at 15-16 (“The

d concentration

oes not mean the

ares and

‘starting point’ and that many mergers falling outside these

onsideration

ssen

specific

facts—not undue emphasis on market share and concentration statistics—determines

whether the Agency will challenge a particular merger.”).

147

See Department of Justice and Federal Trade Commission Commentary on Joint

Merger Guidelines, at 15-16.

148

United States v. Aluminum Co. of America, 377 U.S. 271, 280 (1964); FTC v. Heinz

Co., 246 F.3d 708, 715 (D.C. Cir. 2001) (“Merger law ‘rests upon the theory that, where

rivals are few, firms will be able to coordinate their behavior, either by overt collusion or

[concentration thresholds] are not meaningful, but rather that market sh

concentration are but a

concentration zones [i.e., in concentrated markets] nevertheless, upon full c

of the factual and economic evidence, are found unlikely substantially to le

competition. Application of the Guidelines as an integrated whole to case-

firm created by the merger itself exercises market power after the transaction, without

regard to the reaction of other

149

t Distribution

ticipants are

d on historical

aracterized as

moderately or highly concentrated. We might proceed with the additional assumption,

bona fide arket participant (and

ith committed

ith

ption under

f market power.

150

Even if one were to make these various assumptions, the structure of the market for ticket

distribution services and the nature of the rivalry that takes place within it make it

unlikely that the merger will facilitate either coordinated interaction or unilateral actions

that create market power to the detriment of purchasers.

participants in the marketplace.

We assume for the sake of argument a relevant market of “Ticke

Services for Large Venues” and also assume that, regardless of which par

included in that market, Ticketmaster has a substantial market share base

sales as a clear market leader and, moreover, that the market would be ch

again for the sake of argument, that Live Nation is a m

not, as we think more likely, far better viewed as an integrated producer w

output) and that Live Nation’s output is significant enough that a merger w

Ticketmaster would increase market concentration enough to raise a presum

the Merger Guidelines that the merger would facilitate the exercise o

ove competitive

Cir. 1986); Joint

Merger Guidelines, § 2.1 (describing theory of coordinated interaction).

149

See Joint Merger Guidelines, § 2.2.

150

See Joint Merger Guidelines § 1.51 (b) (mergers that increase HHI less than 100

points in moderately concentrated market “are unlikely to have adverse competitive

consequences and ordinarily require no further analysis”); id. at 151(c) (mergers that

increase HHI less than 50 points in highly concentrated market “are unlikely to have

adverse competitive consequences and ordinarily require no further analysis”).

implicit understanding, in order to restrict output and achieve profits ab

levels.’") quoting FTC v. PPG Indus., 798 F.2d 1500, 1503 (D.C.

We are of course aware that some opponents to the transaction have claimed that

erger to monopoly.

151

n and self-

cus on a

iter—that is

efinition of the

market, which recognizes and incorporates the potential for vertical integration and self-

erous

follow the template

of t turn first to examine whether the transaction will lead to

“co ely define it.

1. Coordinated Interaction

To be successful, coordinated interaction requires participants in a collusive

t to

erstanding is

ous and sold at a

stances,

onitor each

ervices are not

the combination of Live Nation and Ticketmaster is effectively a m

Such arguments, however, ignore the availability of vertical integratio

distribution as substitutes for outsourced distribution, and thus narrowly fo

segment of the market—outsourced distribution of ticketing services simplic

not economically meaningful for antitrust analysis. A more appropriate d

distribution, offers strong counterarguments to the claim that the proposed transaction

will produce market power. With this in mind, and recognizing that num

independent firms provide and support ticket distribution services, we

he Merger Guidelines and

ordinated interaction” in the market as we believe courts would lik

scheme, at a minimum, to reach a mutual understanding regarding the price and outpu

which parties to the understanding will purportedly adhere. Such an und

easiest when the product or service provided by the parties is homogene

standard price that is visible and known to all parties. Under these circum

participants in such an arrangement can readily agree on price terms and m

other’s compliance with the scheme. Where, by contrast, products or s

151

See, e.g., The Ticketmaster/Live Nation Merger: What Does it Mean for Consumers

and the Future of the Concert Business: Hearing Before the Subcomm. on Antitrust,

Competition Policy and Consumer Rights of the S. Comm. on the Judiciary, 111th Cong.

3 (2009), available at: http://judiciary.senate.gov/hearings/testimony.cfm

?id=3674&wit_id=7624 [hereinafter Balto Testimony] (written testimony of David

Balto, Senior Fellow, Center for American Progress Action Fund).

homogenous, and where price and related terms are not observable, reaching (and

enforcing) such an understandi

152

idely and

ickets.com, venues

es to other

tance from

sophisticated technology companies, establish their own system of distribution, and firms

153

gnificant, the venues

grated firms that

nues, for

istribution

companies might provide for free or at a discount.

154

Others might require training of

box office personnel and/or assistance in deve

ng becomes much more difficult.

As was noted above, providers of ticket distribution services vary w

include traditional distribution companies, such as Ticketmaster and T

that currently engage in self-distribution and also offer distribution servic

venues, an unknown but substantial number of venues that could, with assis

that have already vertically integrated whose captive output may perhaps influence the

market even if not technically included within it. Perhaps more si

that purchase ticket distribution services, including those vertically inte

“purchase” from themselves, exhibit a wide diversity of needs. Some ve

instance, require upgrades to their computers and software, which ticket d

loping fan profiles and resulting targeted

152

See Joint Merger Guidelines, § 2.11 (“reaching terms of coordination m

facilitated by product or firm h

ay be

al Merger

ies of various

s, including the United States, that “[c]oordination is simplified when the level of

undifferentiated

petitors to predict

153

See 2006 DOJ And FTC Commentary on the Merger Guidelines, at 15 (noting that

the Agencies will consider the impact of rivalry from products that, while technically not

in the relevant marketplace, nonetheless still exercise some competitive influence on that

market).

154

See Ticketmaster Corp., 2003-1 Trade Cas. at 96,239-40 (reporting that, in some

cases, Ticketmaster provides venues with upfront cash payments to help pay for the

purchase and installation of new equipment).

omogeneity”); International Competition Network Merger

Working Group, Report on Coordinated Effects Analysis Under Internation

Regimes, ch.4 at 13 (2004) (reporting consensus among enforcement agenc

nation

product differentiation is minimal. Markets characterized by relatively

products typically involve fewer terms of sale, making it easier for com

the likely responses of their rivals.”).

promotional strategies. Accordingly, contracts between ticket distributors and venues,

e expectations that

156

blic and

and vertically integrated

arra

e is very

unfriendly to collusion. There is neither a single service nor a single price that can serve

the provision of that service are hidden from rivals’ view. Moreover, the process in

venues do not

155

for instance, are individually negotiated and presumably exhibit servic

are particularized for each venue. Moreover, these contracts are not pu

therefore not observable to rivals before other bids are placed,

ngements of course are completely hidden from view.

157

A market characterized by such heterogeneity and lack of disclosur

as the focus and basis of a collusive agreement, and any meaningful details that underlie

which competition plays out makes collusion additionally difficult. Large

155

For instance, Kroenke Sports Enterprises recently announced it had se

patented Flash Seats technology to power Kroenke's TicketHorse prima

lected Veritix's

ry ticketing

es to "know

ore focused

(July 1,

lease.pdf.

at such contracts

o not follow a

ities usually release

question. Such ex

t, in such a

cheme. For

ansfer price that

aring full

nology is

llustrates the variation in how ticket distribution services are

provided and the difficulty of making meaningful comparisons. See generally Coase,

supra note 121, at 381 (equating complete vertical integration with “suppression of the

price mechanism” for allocating resources). See also Joint Merger Guidelines, § 2.11

(“reaching terms of coordination may be facilitated by product or firm homogeneity”)

(emphasis added); (“Firms with similar capacity, similar cost structure, common aspects

of vertical integration, similar market share, or some combination of these factors are

more likely to coordinate.”).

service, in part, because the Flash Seats technology allows teams and venu

who is in each and every seat, making marketing and customer service far m

on the actual ticket holder." Press Release, Veritix, Kroenke Sports Enterprises Selects

Flash Seats as Exclusive Digital Ticketing Provider for Venues and Events

2009), available at http://www.veritix.com/news/Kroenke_Flash_Seats_Re

156

See Ticketmaster Corp., 2003-1 Trade Cas. at 96,240 (explaining th

“are negotiated at arms length between the venue and [Ticketmaster] and d

standard form. There are no contracts of adhesion.”).

157

It should be noted that publicly-owned venues and public univers

the results of a bidding process, but only after awarding the contract in

post disclosure of the terms of, say, a three to five year contract would no

dynamic industry, facilitate the actual or tacit negotiation of a collusive s

vertically integrated venues, it might even be impossible to specify the tr

corresponds to the market price for distribution services. Moreover, comp

integration with self-distribution following the licensing of Internet tech

difficult. This further i

simply purchase such services in small increments in a spot market but instead seek bids

paring

oviders of software

provide

manner that

or such a long-

term arrangement may itself cause firms to deviate from putative terms of coordinated

159

mediate

ral court

p of the possibility

of vertical integration by venues themselves, “is a powerful deterrent” of the exercise of

that the

for the long-term exclusive provision of such services from possible suppliers, com

the results of such bids to the cost of self-distribution enabled by pr

and expertise that support such vertical integration.

158

These conditions

purchasers with the requisite incentive to structure bidding processes in a

protects themselves from collusive bids. The prospect of winning a bid f

interaction. At the same time, the prevalence of long-term contracts that guarantee

firms a fixed amount of business may protect firms that do deviate from im

retaliation by firms seeking to enforce the tacit arrangement.

160

One fede

concluded that such a bidding process, especially against the backdro

market power by ticket distributors.

161

Other courts have also recognized

158

See Ticketmaster Corp. 2003-1 Trade Cas., at 96,239-41 (elaborating on process of

om bid against

and the time

t decided to

ernative to Ticketmaster, Live Nation “had a line-up of companies

Rapino

uld engage in

arge relative to

viate [from any

, § 2.12 (“Where detection or punishment [of deviation]

is likely to be slow, incentives to deviate are enhanced and coordinated interaction is

unlikely to be successful.”).

161

See Ticketmaster Corp., 2003-1 Trade Cas. at 96,241 (“The bidding nature of the

competition is a powerful deterrent against the existence of monopoly power so long as

there are competitors to bid so as to give the customer an alternative.”); id. (citing cases

for the proposition that “the use of a bidding system is an indication of lack of power to

exclude competitors from the market”).

bidding for venues’ ticket distribution business and noting that Tickets.c

Ticketmaster on all 140 contracts that had become available between 1998

of the litigation). Michael Rapino, Live Nation’s CEO, testified that when i

contract with an alt

around the world that wanted to be our ticketing company.” See Michael

Tesimony, supra note 67, at 36-37.

159

See Joint Merger Guidelines, § 2.12 (“Where large buyers likely wo

long term contracting, so that the sales covered by such contracts can be l

the total output of a firm in the market, firms may have the incentive to de

collusive agreement].”).

160

See Joint Merger Guidelines

existence of a bidding process can protect customers from the creation and exercise of

162

n prevent an

exe r, even in the face of a relatively concentrated marketplace.

163

and Federal

Trade Commission articulate two scenarios under which a merger that does not lead to a

arket

ns by

duce very close

rice of one such

product.

164

The second is a merger in a market where the merged firm’s rivals do not

have sufficient capacity to promptly meet a rise in demand prompted by an increase in

market power. This result is consistent with economic theory, which suggests that

properly structured bidding among a small number of potential sellers ca

rcise of market powe

2. Unilateral Effects

The enforcement guidelines employed by the Department of Justice

monopoly may nonetheless cause a unilateral exercise of market power, that is, m

power that the merged firm can profitably exploit without regard to reactio

consumers and competitors. The first is a merger between firms that pro

substitutes, thereby empowering the new entity unilaterally to raise the p

162

See Nat’l Reporting Co. v. Alderson Reporting Co., 763 F.2d 1020, 102

1985) (no dangerous probability of obtaining a monopoly for court repor

where court adopted single vendor for such service after competitive bidd

5 (8th Cir.

ting services

ing); Owens

g how customers

process and

k-Mayer, Inc. v.

6 F. Supp. 1168, 1171-72 (C.D. Cal. 1986) (no dangerous probability

nment repair and maintenance contract where

defendant obtained such contract after competitive bidding which set a fixed price, and

any renewal of such agreement would require a new round of bidding).

163

See Mary Sullivan, The Effect of the Big Eight Accounting Firm Mergers on the

Market for Audit Services, 45 J.L. & ECON. 375 (2002) (finding that two mergers by Big

Eight accounting firms did not injure purchasers of such services but instead produced

significant efficiencies).

164

See Joint Merger Guidelines, § 2.21.

Illinois, 681 F. Supp. at 48, vacated as moot, 850 F.2d 694 (explainin

protected themselves from potential price increases by adopting a bidding

negotiating contracts requiring cost-justification for price increases); Kir

PAC ORD, Inc., 62

of obtaining monopoly over gover

price or reduction in output by the new entity. Neither scenario appears to be a

plausible result of the Live Na

etmaster do not appear to

y of

nues that have

g the form of

licensing technology to firms that choose to vertically integrate and engage in self-

arily

Nation

ffiliation, we

ing to be particularly

e market’s other

offerings. This could be because Live Nation (unlike Ticketmaster and its other

competitors) might not yet tailor its services to meet the specific needs of the venues it

aim unaffiliated

ticketing

tutes.

ny better. For

one thing, such a challenge would depend upon proof negating the presence of product

differentiation within the ticketi one were to stipulate the

absence of product differentiation, this theory requires demonstrating that rivals cannot

promptly respond to supracompetitive prices. However, the spread of Internet

165

tion-Ticketmaster transaction.

The first scenario is inapt because Live Nation and Tick

offer substitutable services to a common set of purchasers. The majorit

Ticketmaster’s ticketing business consists of distributing tickets for ve

chosen to outsource their ticketing distribution, with the balance takin

distribution via the firm’s Paciolan subsidiary. By contrast, Live Nation prim

distributes tickets on behalf of venues that it owns or operates. While Live

appears to now offer ticketing services to some firms with whom it has no a

are aware of no evidence that venues consider the Live Nation offer

similar to that produced by Ticketmaster, especially when compared to th

s to service. Indeed, the paucity of contracts between Live Nation and

venues makes it particularly difficult to determine whether purchasers of

services view the services offered by the merging parties to be close substi

Nor would a challenge based on rivals’ capacity limitations fare a

ng industry. Moreover, even if

165

See Joint Merger Guidelines, § 2.22.

technologies, the non-rival nature of distribution software, and the industry’s practice of

ents in the

es would have little difficulty to vertically integrate and self-

dist

im to capitalize

on market power raises the same question, oft-repeated in this document, of how easily

hanges

chnology partner

Veritix, AudienceView, Front Gate, or TicketReturn to assume ticket distribution

itse market

power.

s of the nation’s

soliciting bids for term contracts suggest that rival ticket distributors could quickly

replace any reduction in output. And more significantly, recent developm

industry suggest that venu

ribute their own tickets.

166

Therefore, determining how the merged entity might unilaterally a

venues can acquire the requisite technology to self-distribute their tickets. If such self-

distribution alternatives are as inexpensive and attractive as recent market c

indicate—and most venues have the capacity, by partnering with a te

such as

lf—then that would negate any opportunity for a distributor to exercise

167

One alarm raised by some critics of the merger is that even if the technology for

self-distribution is widely available, Ticketmaster “controls” the busines

166

See infra note 171 and accompanying text (explaining how biddin

distribution market undermines reliance upon historical market shares as

market concentration).

167

Even some critics of the merger concede that the technology required fo

distribution is easily acquired and available from many market participants.

Robert W. Doyle, Jr., Testimony Before the U.S. House of Representativ

on the Judiciary, Subcommittee on Courts and Competition Policy (Feb.

(stating that “[s]ome venue wi

g nature of ticket

indicators of

r self-

See e.g,

es, Committee

26, 2009)

ll explain that they have been able to set up their own

systems. The venue operators that have been successful in setting up their own system

did so by licensing software, hiring telephone operators, and opening a local box office . .

.”). To be sure, Mr. Doyle also suggested that self-ticketing is only likely when a venue

sells a large number of tickets, such as when a firm controls more than one venue or more

than one sports team. See id. at 16. Nonetheless, we have identified numerous venues

with relatively modest sales that currently distribute their own tickets. See supra notes

90, 100, 106 and accompanying text.

largest venues with exclusive, long-term contracts. Ticketmaster’s merger with Live

rket position.

try leadership,

hese exclusive contracts could endow the merged firm with anticompetitive market

pow

throughout the

ticketing services industry, and venues in exclusive contracts are bound to particular

169

venues are bound

ree and

ements with

expiration of

such agreements, the venue typically invites proposals from several different ticketing

service and technology providers, initiating a competitive bargaining process for a new

o Ticketmaster,

ploying technology supplied by

cipation of the

icketmaster. This competitive bidding process is pitting

168

Nation, these critics fear, would further enshrine Ticketmaster’s current ma

If rivals and potential entrants are unable to challenge Ticketmaster’s indus

then t

er.

Although exclusive contracts appear to be commonly employed

distributors by contracts of varying lengths, it is easy to overestimate the impact of such

contracts on the future market shares of market participants. Where

by express contracts, the terms of such agreements are generally for more than th

are for an average of six years, with the result that hundreds of such agre

large venues (approximately 20 percent) expire each year.

170

Before the

contract. When Live Nation, for example, decided to seek an alternative t

it entertained a competitive bidding process and found many suitors with attractive

proposals before settling on vertical integration em

CTS.

171

AEG is now reportedly holding a similar bidding process in anti

expiration of its contract with T

169

Cf. Thomas G. Krattenmaker & Steven C. Salop, Raising Rivals Costs:

Anticompetitive Exclusion to Achieve Power over Price, 96 YALE L.J. 209, 267 (1986)

(“Certainly in most industries exclusionary rights contracts cannot be profitably

employed for anticompetitive ends.”).

170

See Ticketmaster Corp. v. Tickets.com, Inc., 2003-1 Trade Cas. (CCH) ¶74,013, at

96,240-41 (C.D. Cal. 2003).

171

Michael Rapino Testimony, supra note 158, at 36-37.

168

Balto Testimony, supra note 151.

distributors both against each other and also against AEG’s alternative vertical

integ

172

everal bidding

al others with

of the Utah Jazz

and until now a Ticketmaster client. Ticketmaster loses many such contests to the

r’s exclusive

tribution business

s indicating that

er the next six

years. Because there are no apparent scale economies that would cause a large market

share to reduce the costs of ticket distribution, nor would any other externalities give

to believe that

Tic al bidders.

t is typical to ticket

et power.

nt, and as is discussed in detail in Part IV, infra, the

effects, and

antitrust scholars, enforcement officials, and courts have historically overestimated the

ration strategies.

Indeed, over the past three years, Ticketmaster has itself lost s

contests upon the expiration of contracts with large venues and sever

smaller venues. For instance, Veritix recently announced that it will take over all

ticketing operations for Salt Lake City’s EnergySolutions Arena, home

173

venue itself, which chooses to take on the task of distributing its own tickets instead of

renewing its distribution contract with Ticketmaster. Because Ticketmaste

agreements with venues expire on a regular basis, the nation’s ticket dis

is subject to a regular and ongoing competitive process, with some report

perhaps all such business will be available for bidding at some point ov

advantages to incumbents with large market shares, there is no reason

ketmaster has an undue advantage in that bidding process over riv

Consequently, there is little reason to conclude that the exclusivity tha

distribution agreements would enshrine or facilitate any meaningful mark

Perhaps more significa

exclusivity of such agreements often have procompetitive purposes and

172

Bloomberg.com, supra note 111.

173

See Veritix Signs Exclusive Ticketing Contract for Utah Jazz, EnergySolutions

Arena, TicketNews (Sept. 9, 2009), available at: http://www.ticketnews.com/Veritix-

signs-exclusive-ticketing-contract-for-Utah-Jazz-EnergySolutions-Arena9929188

prospect that such agreements would produce competitive harm. One reason that recent

tions, such as, for

venue.

benefits stemming

desirable

features such as “best seat available” searches and coordination of multiple marketing

174

Any apparent “exclusionary” impact, then, is likely to be incidental to the

crea

oncentration and

y could deter and

defeat any efforts by incumbent firms to exercise market power. The entry analysis

would turn on many of the same industry-wide conditions and trends that have been

arely asked

s would enable

arket

participants section asked a similar question when determining whether venues that

icket distribution might become market participants in the face of

r’s unilateral effects

scholars and policymakers have applied less scrutiny to such vertical exclusive

arrangements is that they have easily recognizable efficiency explana

instance, encouraging investment in and financing of improvements to the

Moreover, a court expressly ruled on specific efficiencies and mutual

from exclusive agreements used by ticket distributors, which also enable

effort

tion of economic benefits.

Entry

Even if the proposed transaction were found to enhance market c

pose a plausible risk of anticompetitive harm, the prospect of new entr

175

central to our analysis to this point. Our market definition section squ

whether technology companies and other forms of technological progres

venues to self-distribute and thus become part of the relevant market. Our m

currently outsource t

supracompetitive prices. And our examination of the proposed merge

174

Ticketmaster Corp. v. Tickets.com, Inc., 2003-1 Trade Cas. (CCH) ¶ 74,013, at

96,241 (C.D. Cal. 2003).

175

See United States v. Waste Mgmt., 743 F.2d 976 (2d Cir. 1984) (holding that prospect

of new entry rebutted government’s prima facie case that merger producing highly

concentrated market would result in anticompetitive effects).

inquires whether vertical integration and new technologies would counteract any effort

by a m

anies, promoters,

ge venues,

een noted above, there

s, that

technology companies are increasingly available to facilitate self-distribution, and that

176

to the

power.

177

ry has already

o as to realize

efficiencies resulting from the integration of the production, promotion, and ticketing of

live entertainment. Thus, such entry would certainly be “likely” if incumbent firms were

A review of entrants’ success suggest that the threat of additional entry is both

erational within two

arket leader to assert market power.

All of these sections turn on the ability of Internet software comp

and venues to spread the capacity to sell tickets for live performances at lar

either to venues themselves or to outsourced distributors. As has b

is substantial evidence that venues are pursuing self-distribution strategie

there are a growing number of competitive options to venues seeking to contract for

distribution services. The Horizontal Merger Guidelines focus attention

timeliness, the likelihood, and the sufficiency of entry to counteract market

Our sense is that the industry’s recent developments indicate that such ent

occurred and that venues will continue to adopt self-distribution strategies s

to attempt to exercise market power.

real and imminent. For example, Tessitura, a not-for-profit enterprise, entered the market

in the late 1990s by developing its own software de novo and was op

176

See supra notes 79-111 and accompanying text (listing numerous examples of venues

that have recently taken on the task of distributing their own tickets). See also

Ticketmaster Corp 2003-1 Trade Cas. at 96,241 (explaining that the option of self-

distribution via reliance on outside technology providers prevents Ticketmaster from

exercising market power).

177

See 1992 Joint Merger Guidelines § 3.0. See also Cardinal Health, 12 F. Supp. 2d at

54-58 (applying this taxonomy to evaluate defendants’ claim that prospect of new entry

should rebut plaintiff’s prima facie case).

to three years. Given technological developments since then, including the rapid

entry could

that Live

it decided to do

ss could not

ues, including the Los

Angeles Staples Center, Miami’s American Airlines Arena, the Target Center in

ong others.

180

The

tHorse, to manage a

tion

arrangements (indeed, the firm had earlier suggested that it might take its business

elsewhere if the Live Nation/Ticketmaster merger is approved).

183

If, contrary to our

AEG and other

ers are likely to create their own ticketing technologies or license

178

diffusion of Internet ticketing technology, we would expect that de novo

occur much more quickly today. Indeed, opponents of the transaction claim

Nation entered the ticket distribution market just a few short months after

so, and there is no reason that other participants in the entertainment busine

do the same.

179

AEG, for instance, owns or manages dozens of ven

Minneapolis, Charlotte’s Time Warner Cable Arena, Portland, Oregon’s Rose Quarter,

Kansas City’s Sprint Center, and San Antonio’s AT&T Arena, am

firm recently partnered with Kroenke Sports, the owner of Ticke

venue in Colorado. Currently AEG outsources the distribution at most of its venues to

Ticketmaster,

181

but it reportedly is preparing to seek alternative distribu

182

expectations, the merger were to result in an exercise of market power,

adjacent market play

178

.tessituranetwork.com/en/About/Timeline.aspx (repo See http://www rting that the

t was

ng numerous venues

ed Aug. 10, 2009).

181

The Portland Rose Garden, however, self distributes with Paciolan technology.

182

See supra, note 111.

183

See Ticketmaster Client May End Contract if Merger OKed, REUTERS, Feb. 26, 2009,

available at http://www.reuters.com/article/innovationNewsConsumerGoodsAndRetail/

idUSTRE51P7W820090226 (reporting AEG letter advising Ticketmaster that approval of

Live Nation-Ticketmaster merger would release AEG from its ticket distribution

agreement with Ticketmaster).

New York Metropolitan Opera authorized entry in 1996 and that the projec

completed in 1998-1999).

179

Balto Testimony, supra note 151, at 2.

180

See http://www.aegworldwide.com/01_venues/venues.php (listi

owned by AEG) (last visit

such technology from others and entering the distribution market (and they may do so

uld, all by

have the same

s be “sufficient” to counteract any purported antitcompetitive effects from

Nor is AEG the only likely entrant. At least one major record label—Warner

arket, using

186

follow in the

nnounced that it

ster client, along

wsletter

opined that the spin off, creating a new entity worth $1.5 billion, would “instantly

ed entertainment partners Ticketmaster and

even if the merged Live Nation Entertainment does not exercise market power). One

critic of the proposed transaction has argued that entry by Live Nation wo

itself, lower ticket prices.

184

If so, then presumably entry by AEG would

effect and thu

the transaction.

185

Music Group—has predicted that it will soon enter the ticket distribution m

its relationships with artists as a segue. Other major promoters could

steps of AEG and Live Nation. Indeed, in August 2009, Cablevision a

would be spinning off Madison Square Garden, currently a Ticketma

with Radio City Music Hall and other assets. The leading ticket industry ne

creat[e] a possible future competitor to propos

Live Nation.”

187

Presumably such rivalry would include rivalry in ticketin

184

Balto Testimony, supra note 151, at 3.

185

Cf. Cardinal Health, 12 F. Supp. 2d at 58 (finding that entry, while time

would not be “sufficient” to counter-act hypothesized output reduction in th

market).

186

See Transcript of Warner Music Group Call, Addressing Fourth Quart

Earnings (

ly and likely,

e relevant

er 2008

February 9, 2009) (recounting the steps that the firm is taking to “broaden its

sorship, fanclub,

, touring, ticketing and artist management.”); id. (stating that the

firm has been involved in “fan club management” since 2004, including “VIP ticketing”);

id. (stating that, going forward “physical recorded music business will continue to be a

smaller and smaller part of our business . . . . we’ll also be significantly in the business of

sharing the revenues with artists, ticketing, touring, artist management, sponsorship, fan

clubs, etc.”).

187

See http://www.ticketnews.com/Ticket-News-Announces-Top-Ticket-Sellers-for-

Week-Ending-August-1-2009.

revenue mix in the growing areas of the music business, including spon

Websites, merchandising

It is difficult to credit the claim made by some that exclusive contracts entered by

er.

188

With the

ll-service

Ticketmaster. For

ts can

actually facilitate this category of entry by providing upstart firms with the assurance that

189

ted entry to

technologies

w, have found

ution, and it might

be said that these enabling firms represent two different kinds of entry: entry by venues

into self-distribution, and entry by technology firms that enable self-distribution.

firms has the potential to

Ticketmaster, Tickets.com, and other providers of distribution services prevent the sort of

entry that would be necessary to counteract any exercise of market pow

spread of ticketing technologies, there remains the potential for entry by fu

outsourced ticket distributors with the business model popularized by

firms aiming to enter the market with this business model, exclusive contrac

any sunk investments will pay off before a customer switches to a different supplier.

More significantly, recent technological developments have permit

take place through alternative mechanisms. Firms that market “enabling”

that facilitate self-distribution strategies, such as Veritix and AudienceVie

a growing demand among venues to pursue cost-effective self-distrib

Accordingly, the emergence of even a small number of enabling

188

The Department of Justice in the 1990s investigated allegations of illeg

monopolization, which charged that Ticketmaster’s exclusive contracts res

and caused anticompetitive harm. The Antitrust Division ultimately decl

these claims. See U.S. Ends

tricted entry

ined to pursue

Ticketmaster Investigation, N.Y. T

IMES, July 6, 1995, at

concluded that

s are procompetitive and that there are no barriers to

entering the ticket distribution business. See Balto Testimony, supra note 151, at 1-2.

See also Ticketmaster Corp v. Tickets.com, Inc., 2003-1 Trade Cas.(CCH) ¶ 74,013 (C.D.

Cal. 2003) (granting summary judgment against claim of attempted monopolization on

similar and other bases). In Part IV we offer a complete assessment of the competitive

consequences of such agreements.

189

See Joint Merger Guidelines, § 3.3 (explaining that “forward contracting” can help

new entrants divest sales from incumbents).

C14. One opponent of this transaction has reported that the Department

Ticketmaster’s contracts with venue

significantly shape the economic impact of new sources of output.

190

Should

entrants. At the

ers entrants to counter

tive prices.

Con n

Some critics argue that, regardless of the transaction’s impact (or lack thereof) on

current revent

arate entities. That is,

on was poised

cket

affiliation. By merging with Live Nation, these critics claim, Ticketmaster would thwart

Live Nation’s impending substantial and procompetitive expansion in a market segment

whe he merger

ght exist

ctices that

reduce competition that never in fact existed. Still, it is perhaps possible to accommodate

instance, just

as a firm’s apparent market share might overstate its actual competitive significance, so

too might its apparent market presence understate its competitive influence, influence

Ticketmaster or any market participant raise prices, we would expect acceleration in the

trend toward self-distribution and perhaps the addition of new species of

very least, it appears that currently available technology empow

any SSNIP by Ticketmaster with comparable services at competi

cerns About a Purported Loss of “Future” or “Potential” Competitio

the firms’ rivalry, combining Live Nation and Ticketmaster will p

competition that would have occurred had the parties remained sep

these critics claim that, before the announcement of this merger, Live Nati

to become a particularly effective rival in the non-captive segment of the ti

distribution market, distributing millions of tickets for venues with whom it had no prior

re it now barely participates. More colloquially, it might be said, t

eliminates “potential competition” in addition to whatever actual rivalry mi

between Ticketmaster and Live Nation.

The antitrust laws do not by their terms prevent transactions or pra

this sort of concern within the existing framework of merger doctrine. For

190

See Joint Merger Guidelines, § 3.3 (likelihood of new entry depends upon availability

of sales and the minimum viable scale of production).

that a proposed transaction could eliminate. That competitive influence could be

ether poses a

ercises of

uld be nascent

rediction that a competitive challenge would have

occ

At the same time, any potential competition claim should not serve as a vehicle

erger

late the

antitrust laws. The antitrust laws do not smash the economy into individual atoms and

require courts to undo productive cooperation to ensure the maximum amount of putative

191

tangible, such as when a recent entrant or a firm outside the market altog

credible threat of sudden output increases or new entry and thus deters ex

market power by established market participants.

192

Or the influence co

and potential, resting merely on a p

urred absent the transaction.

193

for circumventing and avoiding the rigorous principles that ordinarily guide m

analysis. Every merger that eliminates a “nascent competitor” does not vio

191

Cf. Gen. Dynamics, 415 U.S. at 498-99, 503-10 (concluding that ma

concentration statistics significantly overstated competitive impact of me

192

See United States v. Falstaff Brewing Corp., 410 U.S. 526, 533-37 (19

this theory to remand decision for reconsideration by lower court); id. at 5

concurring in the judgment) (“From the perspective of the firms al

the possibility of entry by such a lingering firm may be an important consid

their pricing and marketing decisions. When the lingering firm enters

acquisition, the competitive influence exerted by the firm is lost with no off

through an increase in the number of companies seeking a share of the

The result is a net decrease in competitive pressure.”) (citation omitted)

rket

rger).

73) (relying on

59 (Marshall, J.

ready in the market,

eration in

the market by

setting gain

relevant market.

; Department of

rger

ed on theory that

sponse to

tions by other market participants); Joint Merger Guidelines,

§ 4.111 (“By eliminating a significant present competitive threat that constrains the

behavior of the firms already in the market, the merger could result in an immediate

deterioration in market performance.”).

193

Cf. Tenneco Inc. v. FTC, 689 F.2d 346, 355-58 (2d Cir. 1982) (articulating standards

governing application of actual potential competition doctrine); FTC v. Atl. Richfield

Co., 549 F. 2d 289 (4th Cir. 1977) (same); 1984 Department of Justice Non-Horizontal

Merger Guidelines, § 4.112 (same).

Justice and Federal Trade Commission Commentary on the Horizontal Me

Guidelines, 24-25 (March 2006) (discussing enforcement actions premis

acquired firm was a “maverick” capable of rapidly expanding output in re

anticompetitive output reduc

rivalry that is possible. Moreover, as Yogi Berra put it, “prediction is very hard,

idly evolving marketplace would have

unf

iction that it

would eliminate meaningful competition that has not yet occurred can deprive the public

194

especially about the future,” and government agencies and courts have no special wisdom

allowing them to forecast how a dynamic and rap

olded but for a voluntary transaction under review.

195

Banning otherwise beneficial integration based on an incorrect pred

194

See White Consol. Indus., Inc. v. Whirlpool Corp., 781 F.2d 1224, 12

1986) (“[I]t is not this Court’s duty to permit only the most competiti

imaginable. This Court may only block proposed transactions the effect o

to substantially lessen competition.”); United States v. AMAX, Inc., 402 F.

959 (D. Conn. 1975) (mere fact that parties could achieve their objectives

restrictive means does not require condemnation of merger that does not

substantially lessen competition). See also Jefferson Parish Hosp. Dis

466 U.S. 2, 44, n.13 (1984) (O’Connor, J. concurring) (purported les

achieving agreement’s objective only relevant for rule of reason purposes i

agreement produces harm in the first place); Broad. Music, Inc. v. CBS, 44

(1979) (mere fact that agreement or merger eliminates competition does no

render it inherently suspect); Am. Tobacco Co. v. United States, 221 U.S.

(1911) (ban on any arrangement that reduces rivalry would “render difficu

33 (6thCir.

ve agreement

f which may be

Supp. 956,

via less

otherwise

t. No. 2 v. Hyde,

s restrictive means of

f the

1 U.S. 1, 23

t thereby

106, 180

lt if not

); N. Sec. Co.

that majority

opinion would

far as it could

t Sherman Act

etition).

rity on mergers

rocter and Gamble

cter & Gamble Co., 386

U.S. 568, 580-81 (1967) (sustaining FTC’s determination that Procter and Gamble was

the “most likely entrant” into the household bleach market). Four decades later, Procter

still does not participate in the household bleach market. Luke Froeb, Testimony Before

the House Committee on Courts and Competition, 6 n. 4 (2009). See also e.g. John E.

Lopatka, United States v. IBM: A Monument to Arrogance, 68 A

NTITRUST L.J. 145

(2000) (collecting numerous predictions by antitrust scholars and lawyers that IBM

would perpetually retain unassailable monopoly over personal computers).

impossible any movement of trade in the channels of interstate commerce”

v. United States, 193 U.S. 197, 411 (1904) (Holmes, J. dissenting) (noting

of the Court had rejected “an interpretation of the law which in [Holmes’]

make eternal the bellum omnium contra omnes and disintegrate society so

into individual atoms”); id. at 361-64 (Brewer, J. concurring) (opining tha

only banned combinations that resulted in unreasonable reductions in comp

195

For instance, recent testimony about this transaction by a noted autho

recalled that, more than forty years ago, the Supreme Court ordered P

to divest Clorox at the behest of the United States on the theory that P

would then enter the household bleach market. See FTC v. Pro

of beneficial integration and deter future beneficial transactions as well.

Indeed, this

ergers

197

salient here,

vertical aspects of

saction will create efficiencies that society would forgo if the transaction is

scu

Even if we assume that a potential competition doctrine applies here, we do not

ore

al effects

ready assesses the

suggest that its

eory of

potential competition suggests that Live Nation is likely to expand in its non-captive

d. But even if

concern may well explain why courts are so reluctant to sustain challenges to m

based upon a “potential competition” theory. This concern is particularly

where the trend toward vertical integration raises the inference that the

this tran

ttled.

198

believe that Live Nation’s future influence on the marketplace changes the m

conventional analysis of this transaction. One reason is that our horizont

analysis—evaluating actual, as opposed to potential, competition—al

possibility of Live Nation possessing captive production, which would

market share overstates its competitive significance. A claim based on a th

ticket distribution capabilities. No such specific plans have been announce

196

Cf. Department of Justice and Federal Trade Commission Commenta

Horizontal Merger Guidelines, 1 (March 2006) (“Mergers between com

‘horizontal’ mergers, are a significant dynamic force in the American econo

majority of merger

ry on the

peting firms, i.e.,

my. The vast

ces, or

ompete more

ustice and Federal

mission Horizontal Merger Guidelines, § 0.1 (“the agency seeks to avoid

ither competitively

197

See infra notes 210-212 (collecting numerous authorities in which courts rejected

such challenges). See also Donald F. Turner, Conglomerate Mergers and Section 7 of the

Clayton Act, 78 HARV.L.REV. 1313, 1317-18 (1965) (describing various benefits of

mergers the existence of which counsels against overbroad rules prohibiting such

transactions).

198

Specific efficiencies related to the vertical integration of Ticketmaster and Live

Nation are discussed infra Part IV.3.

s pose no harm to consumers, and many produce efficiencies that

benefit consumers in the form of lower prices, higher quality goods or servi

investments in innovation. Efficiencies such as these enable companies to c

effectively, both domestically and overseas.”); 1992 Department of J

Trade Com

unnecessary interference with the larger universe of mergers that are e

beneficial or neutral.”).

Live Nation had such a credible plan, any showing that Live Nation would have

aster

d thus is

susceptible to procompetitive influence.

199

However, our evaluation of the ticket

exercised procompetitive influence on the market but for its merger with Ticketm

requires a threshold showing that the market is less than competitive an

199

Thus, by analogy, courts and the enforcement agencies have repea

a “perceived potential entrant” and an “actual potential entrant” cannot

procompetitive influence on the marketplace unless concentration and othe

establish that the market is otherwise susceptible to coordinated or u

anticompetitive behavior.

tedly held that both

exercise a

r indicia

nilateral

ly because Live

Nat itself made it plain

that e market in

que

as meaning

e comes into

rget market

he capacity

ices. If

ust

spects of

genuinely

). Accord e.g.

was not

ctrine). See also

(“As Professor

able to the

competitive to

nfluenced by

7 of the

ol. Foods

f the perceived

vior” and

polistic practices”)

(alternate holding); United States v. Hughes Tool Co., 415 F. Supp. 637, 645 (C.D. Cal.

1976) (rejecting application of perceived potential competition doctrine because “the

relevant market here is not highly concentrated and is freely competitive”); In re B.A.T.,

104 F.T.C. at 923, n.22 (collecting authorities for the proposition that the doctrine does

not apply where nominally high concentration statistics present a misleading picture of

competition in the relevant market); 1984 Department of Justice Non-Horizontal Merger

Guidelines, § 4.111 (application of perceived potential competition doctrine depends

There is no reason to reject this logic simp

ion is already present in the marketplace. The Supreme Court has

there can be no concern about a loss of potential competition if th

stion is already competitive.

The [actual and perceived] potential-competition doctrine h

only as applied to concentrated markets. That is, the doctrin

play only where there are dominant participants in the ta

engaging in interdependent or parallel behavior and with t

effectively to determine price and total output of goods and serv

the target market performs as a competitive market in traditional antitr

terms . . . . there would be no need for concern about the pro

long-term deconcentration of a market which is in fact

competitive.

See United States v. Marine Bancorporation, Inc., 418 U.S. 602,630 (1974

Tenneco, 689 F. 2d at 352-53 (sustaining Commission finding that “market

genuinely competitive,” a necessary element for application of the do

United States v. Siemens Corp., 621 F.2d 499, 505 n.6 (2d Cir. 1980)

Turner points out the perceived potential competition doctrine is only avail

Government if the market is oligopolistic. If the market is sufficiently

enforce competitive behavior on existing sellers, their behavior will not be i

the threat of new entry, thus making the loss of a perceived potential entra

insignificant.”) (citing Donald Turner, Conglomerate Mergers and Section

Clayton Act, 78 H

ARV.L.REV. 1313, 1363 (1965)); United States v. Cons

Corp., 455 F. Supp. 108, 139-140 (E.D. Pa. 1978) (rejecting application o

potential entry doctrine where there was “no evidence of oligopolistic beha

levels of profitability were “indicative of competitive, rather than oligo

distribution market suggests that it is an increasingly dynamic and competitive market,

em that the

is initial

mpower courts to thwart a

mer t.

201

Moreover, there is no reason to believe that Live Nation—as opposed to any

utsourced

hat is to say,

e in this segment but

for the merger, there are other firms that are well suited to enter the market or rapidly

expand their presence within it. If this is the case, then eliminating Live Nation’s

such that Ticketmaster’s current significant market share, even when included with Live

Nation’s output, is unlikely to translate into market power. It would se

potential competition claim would have significant difficulty overcoming th

requirement and would thus fail.

200

The antitrust laws do not e

ger merely to add yet another rival to an already competitive marke

number of other firms that could enter the distribution market or expand their presence in

it—is uniquely well-suited to be the source of potential competition in the o

ticket distribution segment and thereby deter anticompetitive conduct. T

even assuming Live Nation would have rapidly expanded its presenc

l competition

firms” to “restrain their pricing in order

application of

ive potential

cision above,

ministration and

rity on antitrust doctrine and policy.

ine,

otherwise it would swallow the whole of merger law. See AMAX, Inc., 402 F. Supp. at

959 (noting that the argument that internal expansion would be more competitive than a

merger could be made “against any horizontal merger” and thus does not justify

preventing such a transaction). See also BMI, 441 U.S. at 23 (explaining that numerous

mergers between competitors and other competition-reducing transactions properly

withstand antitrust scrutiny).

201

See White Consol. Indus., Inc., 781 F.2d at 1233; AMAX, Inc, 402 F. Supp. at 959.

upon the “economic theory of limit pricing” and assumption that potentia

encourages “monopolists and groups of colluding

to deter new entry”). See also Tenneco Inc., 689 F.2d at 355-58 (rejecting

the “perceived potential competition” doctrine where market had recently becom

significantly competitive independent of any influence exercised by putat

entrant). It should be noted that Professor Turner, cited in the Siemens de

served as head of the Antitrust Division during President Johnson’s ad

was a preeminent autho

200

Moreover, there need to be meaningful limits on any potential competition doctr

competitive influence cannot produce anticompetitive harm and cannot serve as a basis

for disallowing the m

202

s will, in fact, enter

ndidates

EG, the world’s

n) and the

world’s largest owner of sporting teams and events. If Live Nation, having entered the

only for its

ing its reported

is Veritix.

tinue expanding its

client base, both independently and via its downstream relationship with Kroenke Sports

aster and

erger.

As admirers of Yogi Berra, we hesitate to predict which firm

the market or expand their presence within it. Nonetheless, two prime ca

emerged in the previous section discussing market entry. The first is A

second largest promoter of live music and entertainment (after Live Natio

market just a few months ago after obtaining technology from a third party, is poised

rapidly to expand its presence in a segment in which it now participates

internal business needs, then presumably AEG could do the same by pursu

plans to acquire self-distribution technology.

203

A second likely candidate

Given the trend toward ticket self-distribution, Veritix is likely to con

and its TicketHorse subsidiary, particularly as contracts between Ticketm

202

See Atl. Richfield Co., 549 F.2d at 300 (declining to ban merger that p

reduced potential competition because there were several other possible e

Hughes Tool, 415 F. Supp. at 646 (same). See also In re B.A.T. Indus.

852, 924 (1984) (“[E]liminating one of many potential entrants could not

eliminate substantial future competition.”). Here again one finds a re

“perceived potential competition doctrine,” the application of which require

that the alleged potential entrant is one of very few likely entrants s

of the entrant would in fact eliminate or substantially reduce the overall th

into the relevant market.

urportedly

ntrants);

Ltd., 104 F.T.C.

be expected to

ady analogy in the

s a showing

uch that elimination

reat of entry

See Siemens, 621 F.2d at 509 (rejecting application of the

l entry doctrine where there were various other potential entrants into

the market in question); United States v. Black & Decker Mfg. Co., 430 F. Supp.

729,771-773 (D. Md. 1976) (same); Frank H. Easterbrook, Comment, Toehold

Acquisitions and the Potential Competition Doctrine, 40 U. C

HI.L.REV. 156, 169 (1972)

(“If there are many potential competitors, the removal of one of them cannot be

important, because the continued presence of the remaining firms will discipline the

market to the same extent.”).

203

See suora, note 111.

perceived potentia

various venues expire. Any claim that an independent Live Nation, and not AEG or

ake sizeable market inroads over the next few years rests on additional

spe

hich by its nature

tate of

ing the Supreme Court,

have repeatedly ruled out the imposition of liability based upon “uncabined

206 207 208

Instead, as the

mergers

rts have placed

particular emphasis on these considerations when assessing claims that mergers eliminate

lied on these

204

Veritix, will m

culation.

Some speculation is an inevitable part of merger analysis, w

requires courts and enforcement agencies to make predictions about the s

competition after the transaction.

205

Nonetheless, courts, includ

speculation” “ephemeral possibilities,” or “remote possibilities.”

Supreme Court said more than four decades ago, Section 7 bans only those

where the anticompetitive effect is “probable.”

209

Not surprisingly, cou

competition that has not yet occurred.

210

Indeed, at least one court has re

204

See supra note 170 and accompanying text (explaining that most distrib

agreements between Ticketmaster and various venues wi

ution

next three to

stream

Act is with

1045, 1051

ies are not

. Falstaff, 410 U.S.

g)).

g with ephemeral

to be proscribed by

this Act”); id. at n. 39 (citing legislative history to this effect); Tenet Health, 186 F.3d at

1051 (Clayton Act “deals in probabilities, not ephemeral possibilities”). See also

Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, §

0.1 (“Throughout the Guidelines, the analysis is focused on whether consumers or

producers ‘likely would’ take certain actions.”).

210

See Tenneco, 689 F.2d at 354 (rejecting government’s invocation of the actual

potential competition doctrine for reliance upon “speculation” and “ephemeral

ll expire over the

six years). Cf. 1992 Joint Merger Guidelines § 3.3 (providing that down

integration can facilitate entry into a new market).

205

See Brown Shoe, 370 U.S. at 323 (concern of Section 7 of the Clayton

“probabilities, not certainties”).

206

See British Oxygen Co. v. FTC, 557 F.2d 24, 29 (2d Cir. 1977).

207

See Brown Shoe, 370 U.S. at 323; FTC v. Tenet Health Care, 186 F.3d

(8th Cir. 1999); British Oxygen, 557 F.2d at 28.

208

See Marine Bancorp., Inc., 418 U.S. 623, n. 22 (“[R]emote possibilit

sufficient to satisfy the test set forth in § 7.”) (quoting United States v

526, 555 (1972) (Marshall, J. concurrin

209

Brown Shoe, 370 U.S. at 323 (“[N]o statute was sought for dealin

possibilities. Mergers with a probable anticompetitive effect were

admonitions when rejecting the claim—like that made here—that a merging party’s

re-merger

211

n the

etition” require a showing that future entry by one

of t

irreplaceably

influential competitor but for this merger rests on the sort of unjustified speculation that

segment, the

ct of other entrants,

on Live Nation,

petitive

le ge to Ticketmaster seems to lack the factual grounding in objective reality that

courts have repeatedly required (and often found wanting) when evaluating analogous

market share understated its competitive significance because it had p

expansion plans. Some courts have even suggested that claims based o

elimination of “actual potential comp

he merging firms was “almost certain.”

212

The claim that Live Nation would have become a particularly and

courts have rejected. Given Live Nation’s very limited track record in this

established records and capabilities of other participants, the prospe

and the lack of apparent structural features conferring unique advantages

any prediction that Live Nation would pose a unique and substantial com

chal n

claims.

213

nt’s reliance upon

t”).

n pre-merger

e such an

an the

ility and

iring “clear

of the Clayton

f that the firm

would in fact have entered” such that preventing merger will lead to future entry “[g]iven

the less than overwhelming case for prohibition to begin with”); id. at 1386 (advocating

requirement that such future entry was “certain”).

213

See Tenneco, 689 F.2d at 354; British Oxygen, 557 F.2d at 28-30; Atl. Richfield Co.,

549 F.2d at 300 (declining to ban merger that purportedly reduced potential competition

because there were several other possible entrants as well); Hughes Tool, 415 F. Supp. at

646 (same). See also Turner, Conglomerate Mergers and Section 7 of the Clayton Act,

possibilities”); British Oxygen, 557 F.2d at 28-30 (rejecting governme

“uncabined speculation” and “wholly speculative . . . 'eventual entry' tes

211

See AMAX, Inc., 402 F. Supp. at 960 (rejecting government’s reliance o

expansion plans to inflate merging parties’ competitive significance becaus

approach would “ask that this court adopt ‘ephemeral possibilities’ rather th

‘probability’ which § 7 requires”) (citations omitted).

212

See Siemens, 621 F. 2d at 506 (requiring “at least” a reasonable probab

“preferably clear proof”); Atl. Richfield Co., 549 F.2d at 294-95, 300 (requ

proof”). See also Donald F. Turner, Conglomerate Mergers and Section 7

Act, 78 H

ARV.L.REV. 1313, 1384 (arguing for requirement of “clear proo

Horizontal Efficiencies Resulting from the Merger

any

f the merger,

ments would yield

he consolidation of their

tick le.

Like most information technology services, there are probably some scale

re interesting

ketmaster, the

de services of

operate on its

own. Certainly, it is possible that Ticketmaster, a historically successful distributor, has

certain capabilities that Live Nation, a relative a newcomer to ticket distribution, does

not.

214

that Internet

widespread and

commoditized, then any one company’s technological advantage would be limited.

echnology

re likely to have capabilities that other companies cannot duplicate, even

Although Live Nation and Ticketmaster claim that their merger will create m

efficiencies, these efficiencies will likely result from the vertical elements o

discussed in Part IV, infra. It is less certain whether the horizontal ele

any substantial efficiencies that are directly attributable to t

eting distribution services, but some efficiencies might be possib

economies in ticket distribution. If scale efficiencies are nontrivial, then consolidation

would avoid duplicative investments and could yield some savings. A mo

possibility for horizontal efficiencies is that the merger would enable Tic

accomplished technology company, to handle ticket distribution and provi

higher quality and at lower costs than what Live Nation could build and

However, this argument is in tension with the growing evidence

technologies are easy to acquire. If the underlying technology really is

We suspect the truth lies somewhere in the middle. Accomplished t

companies a

78 HARV.L.REV. at 1382 (“Unless a firm possesses unique capabilities, its preparation to

enter a market by internal expansion suggests that the market presents attractive

opportunities that at least one other firm will be likely to seek, also by internal expansion

if necessary.”).

214

Because Ticketmaster is the recognized industry leader and purportedly enjoys these

efficiencies already, these particular efficiencies would be “merger specific.” Live

Nation could not realize them by, say, merging with a different entity.

when the market’s technological demands are not great, and this suggests that ticket

erger than

rse venues,

veal that the venues’

r costs they

e technologies

themselves. Accordingly, if any horizontal efficiencies are possible, they either are

modest or they are easily swa

erger with the

phistication,

Service providers also range from full-service ticket distributors to providers

ough we lack

ity tests for market

wide variation in services offered and that

ion. .

self-distribute their

asingly

shares,

ppears to be

rket

share, but most

ively

significant.

4. Even under narrow market definitions in which Ticketmaster and Live Nation

enjoy large market shares, the ease and attractiveness of vertical integration as

well as the nature of rivalry within the ticketing market prevents Ticketmaster,

or any other ticket distributor, from exercising market power and charging

supracompetitive prices. This critical determination hinges on precisely how

distribution for Live Nation events would occur more efficiently with the m

without it. However, the proliferation of self-distribution strategies by dive

most of which do not have track records as technology companies, re

vertical integration strategies generate efficiencies that exceed whateve

encounter (and otherwise could save from outsourcing) by pursuing th

mped by the efficiencies from vertical integration.

Summary

We close this analysis of the horizontal elements of the proposed m

following preliminary conclusions:

1. Venues that purchase ticket distribution services vary in size, so

and needs, and service providers accordingly present a menu of offerings.

of technology that enables self-distribution. Subsequently, alth

sufficient information to conduct the required cross-elastic

definition, we observe that there is

defining a distinct product market is a difficult determinat

2. The technology required for large and smaller venues to

tickets is becoming increasingly available, and venues are incre

vertically integrating into ticket distribution.

3. Under most characterizations of market participants and market

Ticketmaster enjoys a large market share, such that the market a

moderately or highly concentrated. Live Nation, under some ma

characterizations, has a much smaller but still sizable market

or all of its output is captive and thus is unlikely to be competit

easy and attractive vertical integration is for large venues. M

venues appear to solicit bids from multiple providers, there

focused

oreover, because

are moments of

competition that dull any advantage of incumbency or historical

ketmaster and

utors is unlikely to produce anticompetitive harm

cognizable under the antirust laws because the market is apparently behaving

6. Any horizontal efficiencies produced by this merger appear to be modest.

market share.

5. The elimination of Live Nation as a potential competitor to Tic

other ticket distrib

in a competitive manner.

IV. Analysis of Merger’s Vertical Consequences

Although the proposed Live Nation-Ticketmaster merger has some

horizontal elements, the companies’ core businesses lie in differen

Accordingly, the transaction is more accurately described as a primarily ve

resulting in the integration of successive stages of the process of producing

over the past three decades, the antitrust enforcement agencies have chall

handful of the thousands of vertical mergers that have occurred in the

very few p

important

t market segments.

rtical merger,

and

delivering entertainment to the consumer. There is a broad consensus among economists

and legal scholars that vertical mergers only very rarely pose competitive risks. Indeed,

enged only a

United States, and

rivate challenges during this period have been successful.

215

Such consistency

among scholars, policymakers, and courts reveal a recognition that vertical mergers are

or protect motivated primarily by efficiency concerns, rather than efforts to acquire

market power.

215

See, e.g, Alberta Gas Chems. v. E.I. Du Pont De Nemours, 826 F.2d 1235, 1244-46

(3d Cir. 1987) (summarizing law governing vertical mergers); Fruehauf Corp. v. FTC,

603 F.2d 345, 351-359 (2d Cir. 1979) (rejecting challenge to vertical merger); Crouse-

Hinds Co. v. Internorth, Inc., 518 F. Supp. 416, 428-34 (same); Crane Co. v. Harsco

Corp., 509 F. Supp. 115, 125-26 (D. Del. 1981) (same).

Nonetheless, some critics of the Live Nation-Ticketmaster merger claim that

merger, we

ubstantial

hat have convinced Live

o the

procompetitive motivations that underlie the use of exclusive contracts between ticket

ting those

master merger

but not limited

iew the major

ects of the transaction will produce anticompetitive harm, and

we find them to rest on speculative predictions of harm that are generally implausible in

light of the industry’s structure.

coordination, by

rocess, where

n, all business

firms are “vertically integrated,” in the sense that they perform tasks by two or more

actors who might otherwise operate as independent market actors and cooperate together

by contract. Even the child’s corner lemonade stand can exemplify such integration–if

the child produces the lemonade (instead of buying lemonade on the market) and then

distributes it at retail. Nobel Laureate Ronald Coase first famously observed that markets

vertical integration between these two particular firms will produce vario

anticompetitive consequences. In reviewing the vertical aspects of this

identify many reasons to believe that the merger will more likely result in s

transactional efficiencies. Indeed, the efficiency considerations t

Nation and Ticketmaster to now seek vertical integration are analogous t

distributors, as the Department of Justice apparently concluded after investiga

practices during the 1990s. Furthermore, the proposed Live Nation-Ticket

reflects the industry’s general trend towards vertical integration, including

to the integration of venue ownership and ticket distribution. We lastly rev

arguments that vertical asp

The Evolving Economic and Legal Treatment of Vertical Integration

Broadly conceived, “vertical integration” entails any conscious

contract or ownership, of two or more successive stages of the production p

“production” can include the provision of services or goods. By definitio

and firms are merely alternative mechanisms to organize economic activity,

216

and this

ics. When

economic

h, remarked

ition in a ‘market’

for a far more complicated continuum,”

218

they were

repeating Coase’s prescient insight.

olars

integration

taking control of a

h integration could

s for

distributing their products, thereby creating a “clog on competition” to the ultimate

detriment of downstream consumers.

219

A classic example was the merger between the

Brown Shoe Company—a shoe manufacturer—and Kinney Shoe Co., which

analytical lens has deeply penetrated the fields of both law and econom

Richard Posner stated that “[v]ertical integration is a universal feature of

life,”

217

and Frank Easterbrook, shortly before his appointment to the benc

that “[t]he dichotomy between cooperation inside a ‘firm’ and compet

is just a convenient shorthand

Still, several decades ago, courts, the enforcement agencies, and legal sch

were quite hostile to vertical integration, despite its ubiquity, whether such

occurred by merger, internal expansion, or long-term contract. By

new stage of the process of production or distribution, it was said, suc

“foreclose” rivals from particular upstream inputs or downstream channel

216

See Coase, supra note 121, at 389 (“It can, I think, be assumed that the distinguishing

mark of the firm is the supersession of the price m hanism.”). ec

217

See generally Jack Walters & Sons v. Morton Bldg., Inc., 737 F.2d

1984) (Posner, J.) (“Vertical integration is a universal feature of economic life . . . . A

common type of vertical integration is for a manufacturer

698 (7th Cir.

to take over the distribution of

his own product.”); id. at 698.

218

Frank Easterbrook, The Limits of Antitrust, 63 TEX.L.REV. 1, 1 (1984). To be fair,

this remark (like Bork’s, supra note 230) embraces an approach that began with Ronald

Coase’s seminal article, The Nature of the Firm, supra note 121, and predated TCE.

219

See Brown Shoe, 370 U.S. at 324 (invoking these metaphors when condemning a

vertical merger); Standard Oil Co. v. United States, 337 U.S. 293, 314 (1940) (invoking

these metaphors when condemning exclusive dealing agreements).

manufactured shoes and also owned four hundred shoe stores throughout the country.

220

ably “force”

als from access to

various

courts and the

“inhospitality tradition,” in which vertical arrangements, including vertical mergers, were

222

Although judicial and administrative hostility, or inhospitality, to vertical

the time,

223

After purchasing Kinney, the government argued, Brown would presum

Kinney stores to stock Brown Shoes, thereby foreclosing its riv

Kinney’s stores, which had, before the merger, stocked shoes from

manufacturers.

221

This approach dominated antitrust analysis by

enforcement agencies, giving rise to what subsequently became known as th

suspected to have monopoly motivations and anticompetitive consequence

integration might have made sense given the state of economic science at

220

See Brown Shoe, 370 U.S. at 302-304 (reporting that Kinney owned 40

which sold about 1.6 percent of the nation’s shoes).

221

See id. at 304 (finding that, after the merger, Brown supplied 7.9 perc

sold at Kinney stores); id. at 334 (banning merger because of “trend towar

integration in the shoe industry, when combined with Brown’s avowed po

its own shoes upon its retail subsidiaries, may foreclose competition from a substantial

share of the markets for men’s, women’s and children’s shoes, without prod

countervailing competitive, economic or social advantages.”). See also F

Shoe Co., 384 U.S. 31

0 shoe stores

ent of the shoes

d vertical

licy of forcing

ucing any

TC v. Brown

6, 320-21 (1966) (finding that a quasi-exclusive dealing agreement

of the Sherman

ction 5 of the FTC

the policy of

in the open

f prohibited

ision, was

ons not

of antitrust law.”

Alan J. Meese, Raising Rivals’ Costs: Can the Agencies Do More Good Than Harm?, 12

EO.MASON L. REV. 241, 260 (2003). n.98 (quoting Donald F. Turner, Some Reflections

on Antitrust, 1966 N.Y. St. B.A. Antitrust L. Symp. 1, 1–2 (1966)).

223

See JOE S. BAIN,INDUSTRIAL ORGANIZATION, 381 (1959) (“The trained observer

tends to form a considerable suspicion from casual observation that there is a good deal

of vertical integration which, although not actually uneconomical, is also not justified on

the basis of any cost savings. This is apparently true in particular of the integration of

involving 1% of the nation’s shoe retailers offended the “central policy

Act” and thus constituted an “unfair trade practice” in violation of Se

Act); Dictograph Prod, Inc. v. FTC, 217 F.2d 821, 828 (2d Cir. 1954) (“It is

the Congress that [the defendant’s] merchandise must stand on its own feet

market . . . without the competitive advantage to be obtained by the use o

exclusionary agreements.”).

222

Donald Turner, then head of the Department of Justice’s Antitrust Div

famously quoted to have said, “I approach territorial and customer restricti

hospitably in the common law tradition, but inhospitably in the tradition

economic theory has advanced significantly since the 1950s and views the causes and

inent

fession has

m and other

onomists and

t rvice) is best

understood as an effort to economize on what Coase dubbed “transaction costs.”

225

ight

consequences of vertical integration much more sympathetically. In what one prom

economist has properly characterized as a scientific revolution, the pro

completely reconceptualized the theoretical rationale for the business fir

forms of vertical integration.

224

Building on Coase’s original insight, ec

others have recognized that vertical integration (“making” a produc or se

making instead of buying a product, Coase said, a firm could avoid these costs and m

f the

than a reduction

ost Economics,

etic paradigm

thought to be

UTIONS OF

ation [under

tion were

abor is Limited By

nomic theory

firm does –

ol shared the

ies. See Robert H.

, 200 (1954)

t one level, or .

mple of such

l production, which

CONOMIC

7 (1959);

deed, as early as

o this as a “stock” example of a technological

determinant of vertical integration. See George J. Stigler, The Extent and Bases of

Monopoly, 32 A

M.ECON.REV. 1, 22 (1942) (“[T]he stock example [of vertical

integration producing economies] is the hot strip mill.”).

224

See Oliver E. Williamson, Delimiting Antitrust, 76 GEO. L.J. 271, 274 (1986)

(contending that Transaction Cost Economics and resulting reconception of the economic

origins of vertical integration was manifestation of a “genuine scientific revolution”).

225

See Coase, supra note 121, at 390-92.

distributive facilities by manufacturing firms. In most cases the rationale o

integration is evidently the increase of market power of the firms rather

in cost.”). See also Oliver E. Williamson, Technology and Transaction C

10 J. E

CON.BEH.&ORG. 355, 356 (1988) (asserting that under, price-theor

extant in the 1940s, 50s and 60s, “the ‘natural’ boundaries of the firm were

defined by engineering considerations.”); W

ILLIAMSON,ECONOMIC INSTIT

CAPITALISM, at 7-8 (“The prevailing orientation toward economic organiz

price theory] was that technological features of firm and market organiza

determinative.”); id. at 23-26, 86-89; George Stigler, The Division of L

the Extent of the Market, 59 J. P

OL.ECON. 185, 185 (1951) (stating that eco

has “generally treated as a (technological?) datum the problem of what the

what governs its range of activities or functions.”). Even the Chicago scho

belief that vertical integration produced only technological efficienc

Bork, Vertical Integration and the Sherman Act, 22 U. C

HI.L.REV. 157

(describing the benefits of vertical integration as “bypassing a monopoly a

. . enabling the achievement of internal efficiencies”). The stock exa

technological efficiencies was the integration of iron-making and stee

supposedly produced efficiencies by eliminating the need to reheat iron before feeding it

into a steel furnace. See F.M. S

CHERER,INDUSTRIAL STRUCTURE AND

PERFORMANCE, 70 (1970); JOE S. BAIN,INDUSTRIAL ORGANIZATION, 156-5

CARL KAYSEN &DONALD TURNER,ANTITRUST POLICY, 120 (1959). In

1942, George Stigle ould refer tr w

reduce its overall cost of production.

226

omic actors to

me scholars

tion, are efficiency

estments and the

resulting vulnerability to post-transaction opportunism. Others additionally

recognized that vertical integration enabled coordinated adaptation and production that

Several decades later, scholars rediscovered Coase’s insight and proceeded to

identify a much wider range of “transaction costs” that might induce econ

forgo reliance on market organization in favor of firms.

227

For example, so

argued that committed vertical arrangements, including vertical integra

responses to transacting in the presence of relationship-specific inv

228

226

See id. at 390 (“The main reason why it is profitable to establish a fi

be that there is a cost of using the price mechanism.”).

227

Major contributions include: OLIVER E. WILLIAMSON,THE ECONOMI

CAPITALISM (1985); Benjamin Klein, Robert Crawford, & Armen Alc

Integration, Appropriable Rents, and the Competitive Contracting Process

rm would seem to

C INSTITUTIONS

hian, Vertical

, 21 J.L. &

f Production: Market

Bork, The Rule of

LE L.J. 373

L. & Econ. 86

Barak

onomics and

an & Jeffrey T.

pirical Research in the

r s, Courts, and

4 C

OLUM.L.

05);

Crawford, & Armen Alchian, Vertical Integration,

Appropriable Rents, And The Competitive Contracting Process, 21 J.L. E

CON.&ORG.

297 (1978); OLIVER E. WILLIAMSON,MARKETS AND HIERARCHIES, 20-40, 82-105 (1975).

See also Oliver E. Williamson, The Logic of Economic Organization, 4 J.L. ECON.&

ORG. 65 (1988) (articulating mainstream view regarding rediscovery of Coase’s insight);

LIVER E. WILLIAMSON,ECONOMIC INSTITUTIONS OF CAPITALISM, at 31-32 (explaining

that, where asset specificity is absent, discrete market contracting functions well despite

bounded rationality and opportunism).

N. 297 (1978); Oliver E. Williamson, The Vertical Integration o

Failure Considerations, 61 A

M.ECON.REV. 112 (1971); Robert H.

Reason and the Per Se Concept: Price Fixing and Market Division, 75 Y

(1965); Lester G. Telser, Why Do Manufacturers Want Fair Trade?, 3 J.

(1960).

The instant authors have also contributed to this literature. See e.g.

Richman, The Antitrust of Reputation Mechanisms: Institutional Ec

Concerted Refusals to Deal, 95 V

A.L.REV. 325 (2009); Barak D. Richm

Macher, “Transaction Cost Economics: An Assessment of Em

Social Sciences,” Business and Politics (2008); Barak D. Richman, Fi m

Reputation Mechanisms: Towards A Positive Theory of Private Ordering 10

EV. 2328 (2004); Alan J. Meese, Exclusive Dealing, Raising Rivals Costs and the

Theory of the Firm: Toward a New Synthesis, 50 ANTITRUST BULL. 371 (20

Monopolization, Exclusion and the Theory of the Firm, 89 M

INN.L.REV. 743 (2005);

Price Theory, Competition and the Rule of Reason, 2003 ILL.L.REV. 77.

228

See Benjamin Klein, Robert

market relationships could not produce. All of these arguments rested upon the

istic markets can invite certain market failures that

ver

ng antitrust

s vertical

an instance of

replacing a market transaction with administrative direction because the latter is believed

230

to partial and

dly rejected

g” rivals from access

to inputs or channels of distribution.

232

Instead these courts have adopted a much more

flexible and multi-factored approach that focus the inquiry on whether the vertical

229

assumption that transacting in atom

tical arrangements arise to correct.

Antitrust doctrine has properly followed suit. Prodded by leadi

scholars (Robert Bork once remarked that “[w]hat antitrust law perceives a

merger, and therefore as a suspect and probably traumatic event, is merely

to be a more efficient method of coordination” ), the Supreme Court and lower courts

have relaxed numerous doctrines from the inhospitality era that were hostile

complete integration.

231

Beginning in the late 1970s, courts have repeate

arguments that challenged mergers injure competition by “foreclosin

229

See, e.g.,OLIVER E. WILLIAMSON,THE ECONOMIC INSTITUTIONS OF CAPI

(1985).

230

ROBERT H. BORK, THE ANTITRUST PARADOX 227 (1978). Bork is sig

expansive than Williamson, remarking that “Antitrust’s concern with vert

mistaken. . . . The vertical mergers the law currently outlaws have no effec

creation of efficiency.” Id. at 226.

TALISM

nificantly more

ical mergers is

t other than the

7) (reversing

522 U.S. 3

Jefferson Parish

. 2 (1985) (significantly increasing nature and

quantum of market power necessary to establish requisite element of tying case); Cont’l

T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977) (reversing per se ban on exclusive

territories and location clauses).

232

See Alberta Gas Chems., 826 F.2d at 1244-46; Fruehauf Corp. v. FTC, 603 F.2d 345

(2d Cir. 1979); Crouse-Hinds Co. v. Internorth, 518 F. Supp. 416 (N.D.N.Y 1980); Crane

v. Harsco Corp., 509 F. Supp. 115, 125-26 (D. Del. 1981). See also United States v.

Loew’s, Inc., 882 F. 2d 29 (2d Cir. 1989).

231

See, e.g., Leegin Creative Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (200

96 year ban on minimum resale price maintenance); State Oil Co. v. Khan,

(1997) (reversing 28 year ban on maximum resale price maintenance);

Hosp. Dist. No. 2 v. Hyde, 466 U.S

arrangements meaningfully enshrine or expand market power. Applying this test,

es in which the

, supported,

duce competitive

erning vertical

n -horizontal

mergers are less likely than horizontal mergers to create competitive problems.”

235

ilarly declined to condemn vertical integration in evaluating claims that a

single firm has “monopolized” the market in violation of Section 2 of the Sherman

Act.

236

233

courts have routinely rejected challenges to vertical mergers, even in cas

vertical foreclosure was several times that which had, in previous decades

along with other factors, a finding that the merger would probably pro

harm.

234

At the same time, government enforcement guidelines gov

mergers reflected this new learning as well, expressly noting that “ on

Courts have sim

233

See Fruehauf, 603 F.2d at 353 (instructing courts to examine, among o

the “nature and economic purpose of the arrangement, the likelihood a

foreclosure, the extent of concentration of buyers and sellers in the i

cost required to enter the market, the market share needed by a buyer or sel

a profitable level of production (sometimes referred to as ‘scale economy’), the existence

of a trend toward vertical concentration or

ther factors,

nd size of market

ndustry, the capital

ler to achieve

whether the

To these

d by the

ngth of competing suppliers and purchasers.”); see also HTI Health

Miss. 1997)

merger that

rging parties);

d Section 7

ure).

ph continued

,” available at

http://www.ftc.gov/bc/international/docs/07RoundtableonVerticalMergers.pdf (noting

that “vertical mergers merit a stronger presumption of being efficient than do horizontal

mergers, and should be allowed to proceed except in those few cases where convincing,

fact-based evidence relating to the specific circumstances of the vertical merger indicates

likely competitive harm”).

236

See Belfiore v. N.Y. Times, 826 F.2d 177 (2d Cir. 1987) (rejecting claim that vertical

integration by a monopolist offended Section 2 of the Sherman Act despite negative

oligopoly in the industry, and

merger will eliminate potential competition by one of the merging parties.

factors may be added the degree of market power that would be possesse

enterprise and the stre

Servs., Inc. v. Quorum Health Group, Inc., 960 F. Supp. 1104, 1136 (S.D.

(articulating the same factors).

234

See Fruehauf, 603 F. 2d at 358-59 (rejecting FTC challenge to vertical

foreclosed rivals from selling 5.8% of the market’s output to one of the me

Crane Co., 509 F. Supp. at 125 (rejecting claim that vertical merger violate

despite 8.8% foreclos

235

See Department of Justice 1984 Merger Guidelines § 4.0. This paragra

“they are not invariably innocuous.” See also “Roundtable Submission

These are not, it should be emphasized, recent or untested developments, but

ent agencies

years ago that Judge

Ric by noting:

egory under

ons—that is,

arket or to

way it goes,

been using a

er to do the

on services.

a computer

service, it is

s. Vertical integration is a

ife and it would be absurd to make it a

suspect category under the antitrust laws just because it may hurt suppliers

Although vertical integration is often used to denote the merger of two economic

entities in sequential markets, it more accurately refers to a sp of relationships that

integration—

which includes mergers and acquisitions—is at one end of this spectrum with spot-market

238

middle. The

instead principles that are now fundamental to how courts and the enforcem

approach vertical integration. Indeed, it was more than twenty-five

hard Posner summarized the state of scholarship and antitrust law

Vertical integration is not an unlawful or even a suspect cat

the antitrust laws: ‘Firms constantly face ‘make or buy’ decisi

decisions whether to purchase a good or service in the m

produce it internally—and ordinarily the decision, whichever

raises no antitrust question.’ . . . .When a corporation that has

law firm to handle a particular type of litigation hires a lawy

litigation in house, it is vertically integrating into litigati

When a law firm that has been buying a billing service from

time-sharing firm buys its own computer to perform the

vertically integrating into computer service

universal feature of economic l

of the service that has been brought within the firm.

237

Scrutiny of Ticketmaster’s Vertical Agreements

ectrum

spans a diverse array of organizational arrangements. Complete vertical

transactions at the other, and a variety of intermediate forms, or “hybrid”

arrangements that reflect assorted levels of partial integration, occupy the

692 (8th Cir. 1984) (en

984) (Posner,

J.) (quoting Univ. Life Ins. Co. of America v. Unimarc Ltd., 699 F.2d 846, 852 (7th Cir.

1983)).

238

Oliver Williamson employed this term to describe arrangements that lie between the

“polar modes” of atomistic markets, on the on hand, and “hierarchy,” (complete vertical

integration), on the other. See O

LIVER E. WILLIAMSON, THE MECHANISMS OF

GOVERNANCE, 104 (1996) (“hybrid” modes of economic organization include “various

forms of long-term contracting, reciprocal trading, regulation, franchising, and the like”).

impact on firm’s dealer); Paschall v. Kan. City Star Co., 727 F.2d

banc) (same).

237

See Jack Walters & Sons v. Morton Bldg., Inc., 737 F.2d 698 (7th Cir. 1

category of partially integrated hybrids includes long term contracts, exclusive contracts,

putational effects, joint ventures, cross-ownership, and an

asso

rs of ticket

clusive

ents. Both in the

past and recently, the exclusivity of these contracts has drawn some antitrust ire from

e contracts of this

secure incumbent

ave

hat the

share and stifled

entry possibilities from potential and smaller competitors.

241

Such critics therefore argue

that Ticketmaster’s use of exclusive contracts is anticompetitive and amounts to an

antitrust violation.

ns of anticompetitive conduct, most notably from Pearl Jam, caused the

tracting practices

repeated interactions with re

rtment of other arrangements.

Ticketmaster (as well as, we believe, other outsourced provide

distribution services) sells its ticket distribution services to venues under ex

contracts,

239

which are a species of partially integrated hybrid arrangem

commentators and attention from some antitrust enforcers. Exclusiv

kind, especially if extended for long periods of time, can sometimes

firms with monopoly power against competitive entry by rivals and thus h

anticompetitive consequences.

240

Some Ticketmaster critics have alleged t

company’s use of exclusive contracts has enshrined its leading market

Accusatio

Department of Justice to launch an investigation into Ticketmaster’s con

239

See supra, Part II.

240

See, e.g., United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 200 ive

vertical agreements by a market leader were also found to violate Sectio

States v. Microsoft, Inc., 253

5). Exclus

n 2 in United

F.3d 34 (D.C. Cir. 2001) (en banc) (per curiam), but the

Microsoft court was particularly concerned about how exclusive agreements might

combine with the network externalities of the operating system market to lock in an

inferior technological standard. Network externalities of this sort do not appear to be

present in the market for ticket distribution services.

241

Balto Testimony, supra note 151, at 1 (“Ticketmaster’s monopoly power is preserved

through a series of exclusionary arrangements that diminish the potential for rivals to

arise and challenge the monopoly.”)

in 1994, but the investigation was closed the following year without any finding of

242

st Division

used for ticket

signate a single

assurances to

induce the distributor to make valuable investments in performing its services without

nwilling or

best seat

nd therefore knows

enabled Ticketmaster (and other distribution companies) to finance investments in

upgrading a venue’s ticketing facilities. Without an exclusive distribution period, which

also tends to appear in contracts negotiated by Ticketmaster’s rivals, the distribution

companies would be unwilling to sink upfront investments in improving a venue’s

ith a renewed appreciation for the

anticompetitive conduct. It seems likely, as one opponent of the transaction has

claimed, that the investigation was closed at least in part because the Antitru

recognized that exclusive contracts can yield identifiable efficiencies when

distribution.

243

Like other forms of vertical integration, contracts that de

ticket distributor as a venue’s exclusive distributor provide the necessary

fear that a follow-on distributor would exploit those investments. Consequently,

Ticketmaster is able to provide certain services that it otherwise would be u

unable to provide. For example, exclusivity enables distributors to offer “

available” searches, which are only possible if the distributor sells—a

the availability of—all of a performance’s tickets.

244

Exclusive arrangements have also

ticketing infrastructure.

245

Courts, in conjunction w

242

U.S. Ends Ticketmaster Investigation, N.Y. TIMES, July 6, 1995, at

Antitrust Division Statement, (July 5, 1995)

http://www.usdoj.gov/atr/public/press_releases/1995/0264.pdf.

C14. See also

243

See Balto Testimony, supra note 151, at 1-2.

244

See John Seabrook, The Price of the Ticket, NEW YORKER MAG., Aug. 10 & 17 2009,

at 34, 39 (with the exclusive right to sell tickets to a particular event, “Ticketmaster could

offer fans the best available seats, no matter where they purchased tickets”).

245

See Benjamin Klein, Robert Crawford and Armen Alchian, Vertical Integration,

Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & ECON. 297, 298-

302, 302-307 (1978). Cf. Broad. Music, Inc. v. CBS, 441 U.S. 1, 22 (1979) (fact that

efficiencies of restrictive vertical contracts and vertical integration, have long recognized

that ex

246

gements do limit a

y body of

mpetitive

rrent array of

exclusive contacts does not cause antitrust harm. A significant number of such contracts

et distributors

rs to be a

so small

ently, it is

arrangements

to block entry to the market. Although a venue might encounter some switching costs

when initiating a new contract with a different ticket distributor, there do not appear to be

he ticketing

clusive dealing arrangements can produce these and similar efficiencies.

Despite the efficiencies from exclusive contracts, such arran

potential competitive threat from rivals, so a complete evaluation of an

exclusive contracts would have to weigh the efficiencies against the antico

consequences. There is reason to believe, however, that Ticketmaster’s cu

expire each year, and venues regularly invite bids from alternative tick

before considering renewing with Ticketmaster. Moreover, there appea

relatively modest minimum viable scale for providing distribution services,

entrants do not require large volumes to offer profitable services. Consequ

likely difficult for any monopolist in ticket distribution to employ exclusive

247

any network externalities that would enable a hypothetical monopolist in t

business to enjoy cost advantages over entrants, nor are there interoperability concern

censes militated

1898) (Taft, J.),

sleeping car

xclusivity was

re the necessary investment of capital in the discharge of the duty”).

247

See IIA P. AREEDA ET AL., ANTITRUST LAW ¶ 421f at 68 (1995) (“[A]ll customers

might contract to buy exclusively from incumbents and yet allow effective entry if 20

percent of the contracts expire monthly or even annually.”). Cf. Gilbarco, Inc. v. Omega

Envtl., Inc., 127 F.3d 1157, 1162-64 (9th Cir. 1997) (no chance that exclusive dealing

contracts could foreclose competition among manufacturers for distributors where

contracts were of relatively short duration and manufacturers could offer dealers better

terms upon expiration).

smaller performing rights societies had also adopted so-called blanket li

against their automatic condemnation).

246

United States v. Addyston Pipe & Steel Co., 85 F. 271, 287 (6th Cir.

aff’d 175 U.S. 211 (1899) (explaining that railroad could confer upon

company the exclusive right to provide railroad such cars and that such e

necessary “to secu

that create an industry-wide lock-in effect. Perhaps most significant, switching and

ontracts expire, and

ot appear to have

s from

Ticketmaster and its rivals. For these reasons, a court evaluating a rival’s claim that

t to accommodate their

mpetition, but for the mutual economic benefit of both

com which no antitrust

inferences may be drawn.”

However important it might be that Ticketmaster’s current use of exclusive

contracts does little to stifle entry and competition, the more important observation is that

of partial integration

248

negotiation costs evidently did not prevent a number of venues, including Live Nation

itself, from leaving one distributor and selecting a new one or choosing self

distribution.

249

Ticketmaster regularly loses clients as the exclusive c

the exclusive contracts—either individually or collectively—do n

deterred entry by firm hoping to wrest ticket distribution business away

250

Ticketmaster’s use of exclusive agreements foreclosed competition ruled that providers

of ticket distribution services use “the long term exclusive contrac

customers’ desires, to their mutual benefit…. [the] exclusive contract is not for the

purpose of excluding co

petitors. It is a mutually desired reasonable business practice from

251

these exclusive contracts generate identifiable efficiencies. This use

248

Cf. United States v. Microsoft Corp., 253 F. 3d 34, 54-56 (D.C. Cir. 2001) (en banc)

ability

erected barriers to entry for

r Corp., 2003-1 Trade Cas. at 96,240-41 (describing vigorous

competition between providers of ticket distribution services); id. at 96,241(explaining

that the option of self-distribution via reliance on outside technology providers prevents

Ticketmaster from exercising market power).

250

See supra notes 79-111 and accompanying text (listing numerous examples of venues

that have recently taken on the task of distributing their own tickets).

251

Ticketmaster Corp. v. Tickets.com, Inc., 2003-1 Trade Cas. (CCH) ¶ 74,013, at

96,241 (C.D. Cal. 2003).

(per curiam) (affirming district court’s finding that the benefits of interoper

contributed to Microsoft’s operating system monopoly and

new technological paradigms).

249

See Ticketmaste

hints at some additional benefits that might accompany the firms’ complete vertical

Eff

rs with

ine

ntrality of this

inquiry highlights that while some mergers are little more than shortcuts towards

the other. Even if economic

theo ry, an

ory suggests that

many efficiency motivations underlie the Live Nation-Ticketmaster merger. It might

even be said, as a preliminary matter, that the companies were partially integrated by

icket distributor.

how exclusivity

nd services.

252

f Ticketmaster

with Live Nation is likely to create several additional efficiencies that might not be

erger-specific

efficiencies, all of which are consistent with economic theory, by themselves offer a

compelling endorsement of the proposed merger.

integration.

iciencies from Vertical Integration

Even though current antitrust law no longer views vertical merge

suspicion, it still inquires into the “nature and purpose of the agreement” to determ

whether efficiency motivations underlie a particular merger. The ce

extracting market rents, others are motivated by innovative possibilities and pursuing

efficiencies, and antitrust demands distinguishing one from

ry tells us that vertical mergers are presumptively in this second catego

efficiency analysis is still a routine element of any antitrust analysis.

An application of institutional economics and organizational the

contract, when exclusive contracts fixed Ticketmaster as Live Nation’s t

The efficiencies of that partial integration, discussed above, illustrate

facilitated valuable investments and the development of useful features a

A similarly motivated analysis suggests that the complete integration o

realized in their entirety without complete vertical integration. These m

252

See supra notes 244-246and accompanying text (discussing efficiencies achieved

from exclusive contracts).

1. Investments in Promotion and Information

tracts.

253

One

ially effort that is

e typical

investments

that would enhance the value of collective assets when the rewards from those marginal

investm

254

romoters. The

managers, and

nd other

products, but each party only receives a fraction of the revenue from each ticket sale.

Accordingly, each party is not optimally incentivized to invest the resources and effort to

ced ticket

a fraction of the

ng the value

ning tickets

and maximally utilize capacity. Vertical integration is one efficiency response to this

management,

and ticket sales, then it would be incentivized to make appropriate investments that would

It is well understood that vertical integration achieves efficiencies when it can

organize behavior that is effectively beyond the reach of arms-length con

element that frequently is listed as a “noncontractible” is effort, espec

invested to enhance the value of already-sunk investments. Parties, in th

collective action problem, routinely undersupply effort and other marginal

ents are shared by others. In other words, when team effort among separate

economic actors is required to maximize value, value is rarely maximized

This is precisely the situation that currently confronts concert p

several players along the value chain, including artists, promoters, venue

ticket distributors, all benefit from maximizing revenues from ticket sales a

maximize value for the team. To be sure, Ticketmaster and other outsour

distributors enjoy a commission for each ticket sold, but this fee is only

overall cost of the ticket, and thus the distributor (like every other actor alo

chain) is underincentivized to invest in the promotion required to sell remai

coordination problem. If a single firm is responsible for promotion, venue

253

See, e.g., OLIVER HART, PROPERTY RIGHTS AND THE NATURE OF THE FIRM (1988).

254

See, e.g., Bengt Holmstrom, Moral Hazard in Teams, 13 BELL J. ECON. 324 (1982);

Ilya Segal, Contracting with Externalities, 114 Q.J. ECON. 337 (1999).

improve efficiency, thus increasing both revenue for the performers and the collective

welfare of all those in th

iciencies that

ments. One

unfilled capacity in

nificant

unutilized capacity and lost income to the venues, promoters, and artists. One potential

. If the returns

allocated, parties are unlikely to invest the

req would reap greater

Similar coordination problems might be responsible for impeding valuable

innovations along the value chain. For example, intensified advertising is only one

ers might

fan base, such that

ts. Investments in

ng information that

increases capacity, also are vulnerable to a collective action problem that could be

e principle also applies to other revenue

sources, such as merchandise sales, that could be enhanced by obtaining better

information about a fan base. Because investments in the effort and resources necessary

e value chain.

The live entertainment industry currently shows evidence of ineff

could be reduced by improving incentives to make value-enhancing invest

significant and growing industry-wide challenge, for example, is the

concert halls.

255

These empty seats and unpurchased tickets represent sig

solution to reducing excess capacity is to make additional investments in advertising and

publicity, especially in the form of targeted promotions for specific shows

from such targeted promotion are diffusely

uisite effort and resources. Alternatively, an integrated promoter

returns and is more likely to seek greater capacity.

potential solution to the problem of unsold tickets, described above. Oth

include investing in marketing research or acquiring information on a

promotional activities could be directed at specific consumer segmen

this sort of research, and any investments in acquiring or distributi

mitigated by vertical integration. The sam

255

Krueger, supra note 9, at 12.

to obtain and disseminate new information are so difficult to specify by contract, vertical

ed Comcast-Spectacor, attested to these same

effi

revenue have been

nment

industry, and the Live Nation-Ticketmaster merger has been characterized as an effort to

mec rties from

making the necessary investments to appropriate these revenue opportunities.

2. Cooperative Adaptation to Meet Artists’ Demands, Respond to Market

city to

pursue cooperative adaptation. That is, when unforeseen changed circumstances,

including those that are common in a rapidly evolving industry, necessitate adjustments

facilitate the

integration arises as a useful mechanism to increase efficiency along a value chain. Peter

Luukko, Chairman of vertically integrat

ciencies in his testimony before Congress.

256

Decreasing the excess capacity and pursuing new sources of

described as two central challenges that currently confront the live entertai

pursue both opportunities. Economic theory confirms that vertical integration is one

hanism that can overcome collective action problems that prevent pa

Changes, & Pursue Innovations

Another organizational feature that vertical integration exhibits is the capa

by numerous co-venturers, integration with within a single entity can

256

Peter Lukko, President and Chief Operating Officer, Comcast-Spectaco

Statement Before the U.S. House of Representatives, Committee on th

Subcommittee on Courts and Competition, at 2-3 (Feb. 26, 2009) (“By

company that owns, manages, and/or operates venues, owns several sports t