Prediction Markets on Xm-sirius Merger: Maybe Next Year

Michael Giberson

At the suggestion of prediction market scholars Justin Wolfers and Eric Zitzewitz, InTrade is running a market on the XM-Sirius satellite radio merger. The apparent verdict? Market says, “maybe next year.”

For the moment, the “The XM and Sirius satellite merger to close before the end of Dec 2007” contract most recently traded at 10.5, while the “end of Mar 2008” contract recently traded at 40 and the “end of Jun 2008” contract traded at 55. (Though I’d warn that trading in the contracts are a little thin for jumping to conclusions.)

Googling the XM-Sirius merger turned up this item from SatNews (“a leading provider of satellite news, publications, research and other satellite industry information”) presenting commentary from the Competitive Enterprise Institute with themes similar to those we’ve exhibited here (and here):

CEI said that while some critics have charged that a merged XM/Sirius would “dominate” the market for satellite radio, they ignore the fact that both companies are actually relatively small players in a much larger market of news and entertainment that includes broadcast networks, commercial radio, cable television, the Internet and more. The approximately $13 billion in market capitalization of both companies pales in comparison to $57 billion value of one major cable company alone.

SatNews is drawing from a recent essay by CEI vp Wayne Crews, which draws a quote from here at KP:

Sometimes, competitive industries overshoot and need to retreat and consolidate. … Antitrust delays such needed realignments; but this Roach Motel, you-can-get-in-but-you-can’t–get-out mindset could waste precious months, all to forestall “monopoly” in…audio news and entertainment? As economist and “Knowledge Problem” blogger Mike Giberson noted, “Doesn’t the FCC know that by raising barriers to exit, they create barriers to entry for some future satellite radio rival?”

Not me at my quotable best, but it is always nice to be noticed. Crews goes on to write:

Regulators also should refrain from using the merger review process to extract a parade of concessions from these struggling companies. But meanwhile, antitrust policy should allow aggressive competitive responses to the combination. Wall Street, investors, programmers, consumers, already-poised rivals, and new entrants collectively will discipline more thoroughly than could the FCC. That’s as it should be.