Eroding the Rule of Law: Regulation as Cooperative Bargaining at the FCC

Over the past twenty years we have seen the emergence of an important phenomenon in the practice of modern regulation—cooperative bargaining between the regulator and the regulated over a “bundle” of seemingly unrelated issues.

Because of the multiplicity of issues being adjudicated “simultaneously” materially affects the nature of the resulting bargains, the rise in cooperative bargaining reduces the likelihood that past regulatory action will produce useful legal precedents for regulated firms. Also, regulation “as practiced” now may allow an administrative agency to expand greatly its power beyond its statutory mandate via “voluntary” concessions by regulated firms that are only a part of a larger bargain across multiple issues (e.g., mergers and acquisitions, waiver requests, declaratory rulings). To examine this important phenomenon, we use the Federal Communications Commission as a case study (although we expect issue bundling occurs at other regulatory agencies as well). We begin by presenting evidence on issue bundling by the FCC in the form of consent decrees to settle outstanding enforcement actions that were entered into either during or immediately following merger approval windows. Next, we provide a series of case studies in which the Commission has engaged in “issue bundling” in the form of “voluntary” commitments in exchange for obtaining regulatory relief from the Commission.

As we show, the concessions have little to do with the merits but were instead used by the Commission to achieve political outcomes that could not otherwise be legitimately achieved through generic, industry-wide rulemakings. We then turn to the game-theoretic analysis of issue bundling and discuss the basic theoretical results, as well as some caveats and possible extensions. Conclusions and policy considerations are at the end.