As Donald Trump quadrupled down on his feud with Megyn Kelly and Fox News, a whole lotta prognosticators argued that this was a stupid move for Trump. His erstwhile adviser Roger Stone Jr. told the Daily Beast’s Matt K. Lewis:

It’s counterproductive. You have to recognize that Fox is reaching somewhere between seven and eight out of ten of the primary voters that Trump needs to be concerned about. CNN is only reaching about four out of ten. Their audiences are very, very different … I think the voters would rather go to war with Iran and China over trade, rather than go to war with Fox News.

This echoes an argument that FiveThirtyEight’s Nate Silver made last Friday about the risks Trump posed in a feud with Fox News:

[A] Republican complaining about unfair coverage from Fox is like a Democrat complaining she’s been thrown under the bus by MSNBC (or at least anyone at MSNBC other than Joe Scarborough). Regardless of the merits of the case, the plea is likely to fall on deaf ears.
But that didn’t stop Trump from attacking Fox after last night’s debate …
As a Republican candidate for president, though, you’d much rather have Fox News on your side than not. The 16 percent of Republicans who distrust the network might be really, really into you, but they aren’t going to be the basis for a winning campaign.

Ezra Klein made similar arguments in his Voxsplainer on Trump vs. Fox News as well:

Fox News is tremendously powerful. It is arguably more powerful in shaping the opinions of GOP voters than the official Republican Party apparatus. It’s no accident that the first Republican debate was held on Fox News. Of course it was. The Republican Party needs Fox News more than Fox News needs the Republican Party — something the GOP learned when Fox devoted endless airtime to pumping the rise of the Tea Party …
So far, Trump had found he can divide and conquer by separating a certain segment of the conservative base from the Republican Party. But it’s much harder to cleave conservatives from Fox News, because, both in terms of money and exposure, it’s much more important for leading conservatives to be in the good graces side of Fox News than in the good graces of Donald Trump. The angrier Trump makes Fox News, the fewer friends he will find he has.

Intriguingly, however, these predictions of Fox News clobbering Trump haven’t quite played out as predicted. On Sunday he went on every major talk show except Fox News Sunday. At a minimum, his poll numbers seem to have held steady after the debate. And then, yesterday, there was this:

Now if Trump said that the sky was blue I’d still go outside to confirm that fact, but in this case, New York magazine’s Gabriel Sherman confirms Trump’s tweet:

According to two high-level Fox sources, Ailes’s diplomacy was the result of increasing concern inside Fox News that Trump could damage the network. Immediately following Thursday’s debate, Fox was deluged with pro-Trump emails. The chatter on Twitter was equally in Trump’s favor. “In the beginning, virtually 100 percent of the emails were against Megyn Kelly,” one Fox source, who was briefed on the situation, told me. “Roger was not happy. Most of the Fox viewers were taking Trump’s side.”
Things got worse for Ailes over the weekend. In a phone conversation, Trump told Sean Hannity that “he was never doing Fox again,” according to one person with knowledge of the call. The anti-Kelly emails, and threat of a boycott by Trump, seem to have pushed Ailes to diffuse the war. One Fox personality told me that Fox producers gave instructions to tell in-house talent not to bring up Trump’s controversial comments that Kelly had “blood coming out of her wherever” during the debate. According to one count, Fox only aired Trump’s comment once since Friday, while CNN mentioned it at least 50 times.

Today, according to Sherman, Trump will be appearing on both “Fox & Friends” and “Hannity.”

So what happened?

If Fox News is so powerful, why does it seem that Trump got Rupert Murdoch’s news organization to unilaterally surrender?

(To be clear, it wasn’t an unconditional surrender. Megyn Kelly certainly didn’t apologize for her moderating skills. And Ailes expressed his confidence in Kelly. Still, in essence, Fox News held its fire on the biggest story of the weekend to be able to welcome Trump back to the hack portions of its schedule.)

Sherman’s reporting provides a glimmer of what happened, but I’d go further. In essence, Stone, Silver and Klein all treated Fox News like it really was an all-powerful monopoly that controls conservative news. But Ailes knows better — Fox only seems like it has a monopoly.

To understand what I mean, you have to understand the theory of limit pricing that Paul Milgrom and John Roberts originally articulated more than thirty years ago. In essence, a monopolist, to keep its monopoly, has to keep the price of its product sufficiently low so that it deters entry from other potential producers. The possibility of market entry alone constrains many monopolists from fully exercising their market power.

Sure, Fox News has cornered the market on conservative news coverage on television. But if the network were to ever alienate a significant chunk of its viewers, one could envisage a disintegration of viewership. And while I doubt that a majority of Fox News viewers would leave the network because of Trump, perhaps a significant fraction believes that Kelly or Bret Baier or Chris Wallace or Shepard Smith have gotten too cosmopolitan for their tastes. At a minimum, the blowback that Sherman reports in his story suggests that Ailes was worried about losing his viewers to other cable news channels willing and eager to provide Trump a platform.

I suspect, however, that Ailes might be even more worried about the long-term fallout of a Donald Trump brought low because of a war with Fox News. Over the long term, Ailes has to be concerned about the creation of a rival conservative network to attract those viewers.

Imagine, for a second, that you are a billionaire who thinks you are God’s gift to America and suddenly your poll numbers slump because of unrelenting and negative Fox News coverage. What would you do in response? Sure, maybe run as an independent. Or maybe you form your own conservative news network instead? Given the close relationship between Trump and Breitbart News, for example, and the sympathy that the Drudge Report seems to have for Trump, one could envisage an alliance of disgruntled conservatives forming an alternative to Fox News. Or, as Mickey Kaus puts it: “Fox terrified that conservatives may wake up and start rival to cable cash cow. Leverage!”

Would such an alliance threaten to bring down Fox News? Maybe, or maybe it would have looked like the “Aces High” show from the film “Casino.” But if you’re risk-averse, even the threat might have been enough to force Roger Ailes to back down.

Give credit where it’s due — Trump bargained with Fox News, Trump won, and it wasn’t close.

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