Don Draper, your antitrust attorney is on line 2

A combined Omnicom-Publicis would represent Coca-Cola--and its chief rival, Pepsi. (Ian Waldie/Bloomberg News).
A combined Omnicom-Publicis would represent Coca-Cola -- and its chief rival, Pepsi. (Ian Waldie/Bloomberg News).

It was probably only a matter of time that the global advertising/public relations/marketing industry would take a stab at more consolidation.  Four companies — WPP, Omnicom, Publicis and Interpublic — among them control about two-thirds of the global industry.  Now Numbers 2 and 3 – Omnicom and Publicis — have proposed to hook up, arguing that otherwise they will be bypassed by the likes of Facebook and Google in the fastest-growing digital media space.

This is becoming the strategy of choice for giants in industries that thought they had finally tamed price competition and shut out new entrants by creating an effective oligopoly.  When a new technology comes along that upsets the business model and threatens the old, cozy arrangements, their first instinct is to consolidate further.

In antitrust law, there is a well-established exception to the normal rules against creating monopolies, known as the “failing firm defense.”  When the Federal Trade Commission —mistakenly, in my view — allowed Boeing to acquire its only U.S. rival, McDonnell- Douglas, back in the 1990s, the argument was that, without the merger, MacD would quickly be out of business.  In other words, the competition would be lost anyway.


Maurice Levy of Publicis and John Wren of Omnicom want to merge. Here's why that could be bad for their clients. (Francois Mori/AP)

What has emerged more recently, with mergers like Omnicom and Publicis, is something of a corollary, the “failing business model defense.” The thrust of this argument is that otherwise unacceptable levels of concentration should be allowed as new technology and new business models effectively redefine the boundaries of the “relevant market.” In the case of Omnicom and Publicis, you can be sure that $1,000-an-hour antitrust partners in New York and Washington are already working hard to flush out this concept with the help of high-priced economists in Cambridge, Princeton and Palo Alto.

There are several reasons why this is a wrong-headed and pernicious doctrine.

The first is that the antitrust law, at least in the United States, is meant to protect consumers, not companies.  There is nothing in the antitrust law that says companies, or industries, that are threatened by disruptive innovation should be protected from extinction. The process of creative destruction, which the antitrust laws are meant to encourage, entails a fair amount of, well, destruction — of jobs, of companies, of shareholder value.  It’s painful for some people, but, as we used to say at summer camp, “tough noogies.”

There’s nothing to prevent either Omnicom or Publicis from independently responding to these market changes by building up its already considerable digital marketing capabilities, or partnering or contracting with Google and Facebook if those repositories of consumer data are willing, or launching some sort of rival service if they are not. That’s exactly the kind of save-the-company competition the antitrust law is meant to encourage, and Omnicom and Publicis are each now big enough, sophisticated enough, and have sufficient number of global customers, to do that on its own.  Competition between them would clearly benefit their customers.

Equally dangerous is the precedent an Omnicom/Publicis merger would set in terms of vertical integration.

When two companies doing exactly the same thing merge, that is known as horizontal integration. When two companies that do different things in an industry merge – say a parts supplier and a manufacturer – that is known as vertical integration. The presumption behind Omnicom/Publicis is that, in the world of marketing to consumers, vertical integration is inevitable and desirable — and, because of that, so is further horizontal integration in advertising.

In effect, the Omnicom/Pubicis argument goes like this: Because Google and Facebook have used network efficiencies to create a winners-take-all duopoly in the area of consumer information, the only way to stop them from leveraging their monopolies into control of the advertising/public relations space is to create a duopoly in advertising/public relations.  Or put another way, the only way we can preserve competition is to destroy it.

Here would be the pro-consumer rebuttal: In industries undergoing rapid change due to new technology, the best policy is to let the competitive marketplace figure out the best technology and the industry structure.  And the way to ensure that this messy discovery process produces the best economic result is for the government to insist that companies succeed on the basis of innovation and ingenuity, not by getting bigger through mergers and using size to shut other companies and other technologies out of the competition.

If the Justice Department gives the green light to an Omnicom/Publicis, it would also be giving the green light to the merger of the other two members of the advertising oligopoly, WPP and Interpublic. And at that point the same logic could be used by antitrust attorneys to justify a merger between Google and Facebook to deal with the competitive “threat” from the advertising giants. Where does it stop?

It’s also important for antitrust regulators not to let all this future-think strategizing divert attention from the fact that while traditional advertising and public relations are losing market share to digital-based forms of marketing, they constitute a $50 billion global industry in which customers are entitled to vigorous competition.

Today, Johnson & Johnson, Mars, McDonald's, Pfizer and Procter & Gamble are significant customers of both Omnicom and Publicis, which means, in practice, that they are playing one agency group off the other to get the best price and service. After a merger, that won’t be possible.

And if the firms were to merge, Omnicom/Publicis would find itself representing both Coke and Pepsi, along with every member of the mobile phone oligopoly: AT&T, Sprint, T-Mobile and Verizon. Such conflicts-of-interest already limit competition in the highly-consolidated advertising world; further consolidation would increase the number of such conflicts exponentially.

We have enough experience now to know that excessive concentration in the advertising world has not benefited consumers or the economy. Relative to the price of other things, fees have gone up, creativity has gone down and competition from new “hot” shops only lasts until they are bought up by one of the giant groups. An entrepreneurial industry that once thrived on ingenuity and originality has become increasingly corporate, bureaucratic and focused on quarterly earnings. Omnicom/Publicis would only make it worse.

Steven Pearlstein is a business and economics columnist who writes about local, national and international topics.
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