Blowing Up Antitrust Enforcement
4000 of you wrote the Federal Trade Commission and Department of Justice about monopolies. Your comments are *fascinating.* Plus Elon Musk and Twitter...
Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…
Last week I asked readers of BIG to send in comments to antitrust agencies about monopoly power. Enforcers are revamping the way they deal with antitrust violations, and have asked for public feedback.
I thought it would be interesting to see what you have to say, but I did not expect the overwhelming response that came in. So far, roughly 3700 of you offered your perspective on how monopolies are affecting where you work and live. That is a stunning number, and it’s so many that the agencies haven’t been able to process and post them all yet to the public docket. But they have posted some of them, and so this issue is a selection of your observations.
Plus:
Will Elon Musk and Twitter Sell Tickets to the End of the World?
Antitrust Division chief Jonathan Kanter Pees in the Economists’ Pool
Did the Ocean Shipping Cartel Impose a 20% Tariff on U.S. Imports?
The Europeans Passed the Digital Markets Act. Will It Matter?
The Era of Lethargy Is Over
Antitrust law is essentially the law we use to structure all the money and power in corporate America, because it’s the legal framework by which firms can exploit their market power. But for forty years, it’s been essentially dormant, which is, as you’ll see, why our society is so screwed up.
But that era of lethargy is over. For instance, in 2010, the last time antitrust officials revamped how they enforce the law against mergers, they received a total of 32 comments. Public feedback was so unimportant that the webpage on the FTC with those comments is broken. Here is the whole list of comments on how to enforce the law that structures every single one of our markets, from search engines to peanut butter to airlines.
While there were a smattering of consumer and labor groups, the majority of the comments came from big corporations and economic consultants saying ‘attaboy we love how you let most mergers through.’ No politicians weighed in, almost no ordinary citizens said anything. It was pure insider-speak.
This time, it’s a very different story. Four thousand people have chimed in since I made the call last week. That’s more than one hundred times the number from twelve years ago, and the docket isn’t closed until next week. Rather than offering my own thoughts, I figured I’d put up some of the comments you had to offer, grouped by topic.
If you read these, you’ll get a sense of how monopolies are affecting most parts of our society, from technology to the military to newspapers to farms to energy.
(1) Monopolies Worsened the Semiconductor Shortage
Shakeel Dalal: “The loss of American competitiveness in semiconductor tech has much less to do with regulatory constraints and much more to do with the laziness of monopoly players. I spent years trying to get Intel to adopt my company's technology which increased uptime of their equipment by 2-5%. A small gain, but suddenly a big deal if there's a global shortage of semiconductor manufacturing capacity.
They blew us off for years until we quit the business thinking that there was a fundamental business flaw in what we were trying to do. Turns out they just didn't think they needed to compete. Now that semiconductor uptime is everything again, I know for a fact that they've reverse engineered my product and are deploying it. I can't stop them. But I could've helped them, but they didn't think they needed to compete.”
(2) Monopolies Slow Innovation in Renewable Energy
Bill Dugan: I write from a standpoint of experience in the energy and utility industry, which has a long history of monopolists and market power. I have seen firsthand how utility monopolies have damaged the growth of a dynamic renewable energy industry by slowing down new projects and how clearly and obviously utilities with market power can gouge their customers in places like ERCOT (Texas), while facing no accountability, since their customers are without competition or recourse. I've seen monopolies fight tooth and nail to keep their guaranteed rates of return on projects that are supposed to be competitively bid on, meanwhile buying all their competitors.
(3) Monopolies Kill Local News and Harm Hollywood
Josh Pate: I am a screenwriter and the creator of the Netflix show Outer Banks. Mergers in the film industry have been horrendous for artists. It has massively suppressed wages. It has greatly limited creativity. There are now essentially 4-5 places to sell shows, a few years ago, there were over 20.The Disney Fox merger should NEVER have been allowed to happen. The media is FAR too consolidated.
Angela Mettler: As a former small-town journalist, news company mergers are one of the most prominent issues in my mind. Large news corporations have been allowed to purchase small, locally-based publications and television stations, and have destroyed newsrooms as a result. The small town newspaper I worked at used to employ 6 writers and three editors; having been bought and re-sold several times since I left in 2006, it now employs two writers and one editor. Needless to say, this has been devastating to the quantity and quality of local news in the area.
(4) Monopolies Raise the Price of Garden Chemicals
Anonymous: I work as a vendor in Home Depot and Lowes for a major supplier of garden chemicals. The category is controlled almost entirely by 3 main companies. At my company, we have been raising our prices the last 2 years despite making record profits. The increased profits have not been reinvested into the business or the labor and I believe it is because there is a lack of meaningful competition between the 3 main companies in this category. The can simply enrich our shareholders with increased dividends and stock buybacks because they so not need to compete in the marketplace.
(5) Monopolies Are Crushing Farmers
Terry Smith: I crop farm and raise cattle and sheep in south central Kansas. We are down to one controlling processor in the lamb industry ( Superior farms @ Dixon California ). This company is also a major importer of foreign lamb.
The beef industry no longer has a " Market" determined by buyers and sellers coming together to find a price. With just a few processors they simply set the price. Major chemical companies control much of the seed industry for corn, soybeans and grain sorghum. We have no local banks because they have merged and become just branch banks who must answer to the power structure in some distant place.
(6) Monopolies Strangle Our Defense and Aerospace Sectors
Lowell Reeh: I am an aviator in the military, the lack of competition in bids for any military equipment is absolutely destroying taxpayer money. Large military industrial complex firm's like lockhead and Raytheon get every bid on everything we use. Lockhead recently put out a new system for downloading information from the aircraft a glorified flashdrive costs 3500 dollars it is ridiculous. Please take decisive and bold action to rein in corporate mergers and introduce competition back into our democracy. Thank you for taking the time.
Christian De Leon-Horton: As a military veteran with experience in multiple theaters, I am extremely concerned about the monopoly power that a handful of corporations exercises over the sustainment and equipping of our armed forces. Although corporate mergers are frequently described as an increase in efficiency, my own experience suggests that massive corporates lack the flexibility to properly sustain military deployments at a reasonable cost to the tax payer.
When one corporation controls the production and maintenance of a weapons system, they can and often do mandate procedures that make maintenance and deployment inefficient and expensive. To take just one example, some of our larger shelter systems actually require contractors in theater to set up and maintain, rather than being simple and rugged enough for troops to erect and maintain themselves.
Jeff Morrow: I worked for Boeing, once a national treasure, before the merger. I was one of the elite engineering few who attended MIT/Sloan and were inducted into tech-tinged shareholder-value Financialism. It seemed a sensibly simple and balanced basis for making business decisions. After the merger we were willing prey for the real Financialists who showed up but it took us all a while to really wound the Company.
Before the merger, Boeing leadership undertook to learn from other world class manufacturing companies, putting execs and managers through a rigorous program of study, reflection, and travel to visit firms like Toyota. The initiative lit parts of Commercial on fire to find ways to continuously improve, building great momentum. Its high point was converting 737 Final Assembly into a continuously moving line - planes advanced toward the flight line at an inch per minute while being assembled, an unheard of, pioneering, approach. Thirty years of production volume had brought the 737 about as far down its learning curve as it seemed likely to get but continuous flow production so regularly brought dramatic improvement in things like production rates and inventory turns that they just became expected. Throughput and cash flow soared.
In doing so, the 737 became the cash cow the Financialists used to fund most of the dividends and buybacks that might have gone to (among other things) a new program to make an all-composite replacement for the 737, a refreshed version good for another 30 years. That innovation was stifled and instead a short-sighted rush to market of a re-do of a 30-yr old airframe led to quick and dirty design shortcuts on the 737MAX. Quality and delivery problems in other programs have similar roots. Here "Shareholder Value" and "Consumer Welfare" killed people and wounded a national treasure.
(7) Monopolies Undermine Health
Tyler Crane: Thank you very much for all the work you do for all of American people and businesses. I work for a pharmaceutical firm in Cambridge. We merged with a smaller lab in Utah to process all of our discovery biology and chemistry in Salt Lake City, because lab space is cheap there and our international owners see the bottom line first. Unfortunately, our ability to collaborate has been severed due to the distance and differences between the two offices, and our output has taken a sharp downturn. I would normally assess this as a poor corporate decision and move on, but this isn't a food chain or outlet mall, this is actively inhibiting our ability to help patients who need medicine. Please carefully consider which industries can afford to merge and which cannot, just like you carefully considered which banks to keep solvent and which to not back in 2008-2009.
Luke Slindee: Concentrated corporate power is destroying the profession of pharmacy. After spending many years trying to understand why my chosen profession felt like it was dying, I now know that it is due to oligopolies and subsequent anti-competitive business practices in both the suppliers (called drug wholesalers) and purchasers (called pharmacy benefit managers or PBMs) of pharmacies. 95% of the drug wholesaler market is controlled by just three companies. Over 80% of the PBM market is controlled by just three companies, and each has vertically integrated with an insurance company. Each of these oligopolized markets were created through mergers that should never have been allowed. Currently all six of the mentioned companies are in the Fortune 20.
Christopher Switzer: I live in a medium-sized city that is dominated by two health care networks. This has meant that I’ve repeatedly had to delay necessary care either because of cost or because providers aren’t available.
David LaDow: In my humble opinion, most economists are idiots.
(8) Monopolies Make the Internet Boring and Soulless
Jason Gragg: When I was a kid, the internet was a wonderful place full of independent, distinct communities on any subject one could imagine, and most of my friends were online. Now they're dead in favor of a small number of corporate behemoths that ban people at the drop of a hat, and I've grown socially isolated and bored as a result; just haven't found an alternative to internet culture.
(9) Monopolies Facilitate Layoffs and Despair
Connor Leech: I’ve been laid off by my company after a private equity firm bought it and offshored all the work to Eastern European developers. I’ve stood in line for hours for rental cars that I’d previously reserved and experienced the decline in quality of tech platforms and the outrage they inspire. I’ve felt the blandness and despair of living in a town with nothing but chain stores, of having nowhere to go but a CVS. Please continue your work to bring economic control to our communities instead of the centralized hands of Wall Street.
Anne Sowards: I have been through several mergers and they always seem to result in employees getting laid off and increased market power for the new company and decreased competition for the industry as a whole. I've also experienced my favorite niche streaming site (Dramafever) getting shuttered overnight, the victim of a merger because the new entity (ATT / Time Warner) thought it didn't have "enough" customers. That its sales weren't big enough to make it worth keeping around.
(10) Monopolies Undermine Government Procurement and Operations
Anonymous: We respectfully request that you take a look at the M&A trends driving consolidation in the federal consulting industry. Top 200 federal consulting firms (out of thousands registered in SAM.GOV) secure about 60-65% of the annual federally awarded contract dollars ($500B or so). The competitive disparity may be worse at individual agencies where a handful of large firms repeatedly secure large, lucrative and mission critical contracts since the agencies tend to be risk-averse. They also tend to influence the federal policies and regulations that stymie small business growth, make it difficult for small organizations to attract key resources, and gobble up contract opportunities meant for small businesses. The disparity between the top-ranked federal contractor (2021 revenue $9.2B) and the 100th ranked firm (2021 revenue is less than $250M) is even starker.
Other Recent BIG Articles
Elon Musk and Selling Tickets to the End of the World: I wrote something up about what Elon Musk’s offer to buy Twitter reveals about social media, and how policymakers should respond. The gist is, the problem isn’t Musk, it’s the rules by which we’ve structured social media business models, namely Section 230 of the Communications Decency Act. You can read that here.
Peeing in the Economists’ Pool: Antitrust Division chief Jonathan Kanter gave some heated remarks last week to a room full of fancy antitrust lawyers. In short, the consumer welfare standard isn’t long for this world. More here.
Did the Ocean Shipping Cartel Impose a 20% Tariff on U.S. Imports? Several economists at the IMF did a study on the cost of shipping delays in terms of tariffs, and I extrapolated from their calculations to put a number on what the traffic jam at the ports is doing. More here.
The Europeans Passed the Digital Markets Act to Tame Big Tech. Will It Matter: There’s a lot of hoopla about the Digital Markets Act in Europe, which is a law that the European Commission, the European Parliament, and European Council all settled on few weeks ago. This law is supposed to do something about big tech’s ‘dominance,’ or so say the headlines. Will it? Probably not. More here.
Thanks for reading!
And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.
cheers,
Matt Stoller
P.S. The CEO of Delta Airlines denied getting a bailout on CNBC. I have no reason to put this here, except it made me really really mad.