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Network effects and merger analysis: instant messaging and the AOL-Time Warner case

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  • Faulhaber, Gerald

Abstract

The AOL-Time Warner merger, announced in January 2000, was and still is the largest merger ever consummated. The merger plan was submitted to the FTC for antitrust review and to the FCC for license transfer review. The FTC approved the merger with conditions relating to open access. The FCC approved the merger subject to a condition (among others) that mandated interoperability for future (but not present) generations of AOL's popular instant messaging (IM) service, based on the potential leveraging of merger assets together with current IM network effects into market power in next-generation IM services. This condition was controversial and represents a new departure in antitrust analysis for industries imbued with network effects. This paper analyzes AOL's IM service and the ability to leverage merger assets into future market power in the context of the FCC condition; counter-arguments are considered and larger lessons for "new economy" antitrust are drawn from this experience and analysis.

Suggested Citation

  • Faulhaber, Gerald, 0. "Network effects and merger analysis: instant messaging and the AOL-Time Warner case," Telecommunications Policy, Elsevier, vol. 26(5-6), pages 311-333, June.
    • Handle: RePEc:eee:telpol:v:26:y::i:5-6:p:311-333
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    Citations

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    Cited by:

    1. Foros, Oystein & Jarle Kind, Hans & Yngve Sand, Jan, 2005. "Do internet incumbents choose low interconnection quality?," Information Economics and Policy, Elsevier, vol. 17(2), pages 149-164, March.
    2. Timothy Simcoe & Jeremy Watson, 2019. "Forking, Fragmentation, and Splintering," Strategy Science, INFORMS, vol. 4(4), pages 283-297, December.
    3. Xu, Jun, 2013. "A two-sided market model of optimal price structure for instant messenger," MPRA Paper 62960, University Library of Munich, Germany.

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