Antitrust in Telecom solves monopolization and avoids inflation

Basically, the prevailing view has been that the market, by and large, can take care of itself, and the government doesn’t need to take such a hands-on approach. And that’s led to gradual concentration over time. For example, traditional economic thinking is that if profits in a certain industry become very high, it becomes attractive for new incumbents to enter the market, and those excess profits get competed away. But that’s become less and less true over time in the United States. “It’s true sometimes, you could even argue that it’s true often, but it’s not always true — and if you’re not careful, you can end up in a situation where it’s not true anymore, and that’s exactly where we are today,” Philippon said. Incumbents have a lot of mechanisms to make it hard for competitors to enter, and they use a variety of tactics to keep them out — predatory pricing, patents, contracts, etc. In 2016, Lina Khan, now counsel on the House subcommittee on antitrust, penned an influential paper on the antitrust issues surrounding Amazon. In it, she used the example of Amazon and Quidsi, an e-commerce company that ran Diapers.com. Amazon tried to buy Quidsi in 2009, and after its founders declined, Amazon cut its prices for diapers and other baby products and launched a new service, Amazon Mom. Quidsi couldn’t keep up — Amazon has the resources to drop prices and take a hit in order to compete, Quidsi does not. And so it wound up selling to Amazon in 2010. Regulators looked at what happened but didn’t pursue a case against Amazon, and Amazon later scrapped the discounts and went back to what it was charging before. By dropping its prices, it basically pushed Quidsi out. Varsity Brands, which is owned by the private equity firm Bain Capital, has a monopoly on the cheerleading industry. Stoller recently laid out the tactics it’s engaged in to achieve its position and maintain it. The company has managed to vertically integrate multiple levels of the cheerleading industry, ranging from competitions to apparel, and has gobbled up competitors big and small. Its rivals aren’t allowed to showcase their apparel at Varsity events, and it offers contracts to gyms that give them a cash rebate if they send cheerleaders to its competitions and get them to buy its equipment. It took a copyright case over its uniforms to the Supreme Court. In the 2020 Netflix series Cheer, Varsity’s monopoly is featured, and the consequences of it are evident: To see cheerleading competitions, people have to pay for a specific Varsity app. They’re no longer shown on ESPN. “Varsity uses the great aspects of cheerleading to generate incredible revenue that only benefits them,” said Kimberly Archie, founder of the National Cheer Safety Foundation. Amazon declined to comment for this story, and Varsity Brands did not respond to a request for comment for this story. This isn’t all to say that anticompetitive behavior is always allowed, and mergers aren’t sometimes blocked. In February, the Federal Trade Commission sued to block the personal care company Edgewell from acquiring razor startup Harry’s. The Justice Department has also probed Live Nation on its practices after its 2010 merger with Ticketmaster and alleged that the combined company pushed venues into using Ticketmaster over other ticketing companies. This is about prices, but there’s also more to it A lot of the concern about corporate concentration comes down to its potential to drive up prices. The fewer options there are, the fewer places consumers have to shop, and the less pressure there is to keep prices low. Antitrust enforcers and regulators, when examining a potential merger or acquisition, or considering if a company is engaging in anticompetitive behavior, are supposed to apply a consumer welfare standard. Basically, it’s fine for a company to be really big, as long as a consumer isn’t harmed. The concept was first introduced by conservative judge Robert Bork in 1978, and it’s guided a lot of US antitrust policy ever since. Court rulings over time have been more permissive in antitrust cases, rendering practices that were once illegal legal. And the DOJ and the FTC, the two federal regulators most involved in antitrust matters, have also become more lax. Basically, it’s fine for a company to be really big, as long as a consumer isn’t harmed Most directly, the consumer welfare standard has translated directly to whether they’re paying higher prices. But a lot of the time, prices go up anyway. Sometimes, as Philippon’s book shows, the price hikes are gradual. With fewer players in a space, there’s no one to compete to drive them back down. Or competitors will raise prices in tandem — for example, in the pharmaceutical industry, the prices of competing drugs will sometimes go up at the same time. When companies merge, they’ll often argue that “efficiencies” — combined supply chains, shared resources, or worker redundancies that can translate to layoffs — will make things better for consumers and bring costs down, but if there’s no one to compete with them, the opposite can occur. A New York Times report in 2018 found hospital mergers raised prices for hospital admission in the majority of cases. But beyond consumer pricing, antitrust advocates note that there are other factors to consider. Corporate concentration means companies have to compete less for workers, and therefore could push wages down. Monopolies and oligopolies can also harm suppliers — if Amazon gets big and powerful enough, it could control what shippers such as FedEx and UPS can charge it. Consumers also lose the ability to vote with their wallets and eyeballs — basically, to say, I don’t like what a company is producing, what it’s charging, or how it’s behaving and go somewhere else. Just look at Facebook. “As soon as they achieved monopoly, they said forget the rules, and they were right. Every time they were caught cheating, nothing happened because there was nowhere else to go,” Philippon said. Amazon does drive prices down, and Facebook’s services are free for consumers, but that doesn’t mean that their dominance is good. More and more research is connecting concentration to higher prices for consumers, lower wages for workers, and other developments you wouldn’t expect to see in a competitive economy. Just as the shift toward monopolization has been gradual, getting more competition could take a long time, too There’s no one remedy for getting more competition back into the US economy, and even sector by sector, it’s really complicated. It’s one thing to call for Instagram to be broken away from Facebook, but no one agrees on how to fix virtually anything in the American health care system. It’s a good thing that antitrust is getting more airtime, with politicians, the press, and the public paying more attention to corporate concentration and its effects. Tech giants have been a main area of focus as of late, with regulators and lawmakers at the state and federal levels launching probes and holding hearings. Sens. Elizabeth Warren and Bernie Sanders have railed against powerful corporations on the campaign trail, and on the right, Republican Sen. Josh Hawley has taken on a crusade against Big Tech. But it’s going to take a lot more than public pressure for things to change. For one thing, it’s often hard to recognize how monopolized the economy has become. Dozens of brands can be housed under a single umbrella, and a lot of people don’t even realize it. But as I noted in 2018, monopolies are really everywhere: Four companies, for example, control 97 percent of the dry cat food sector: Nestlé, J.M. Smucker, Supermarket Brand, and Mars. According to the report, Nestlé has a 57 percent hold on the industry, owning brands such as Purina, Fancy Feast, Felix, and Friskies. Altria, Reynolds American, and Imperial have a 92 percent market share of the cigarette and tobacco manufacturing industry. Anheuser-Busch InBev, MillerCoors, and Constellation have a 75 percent share of the beer industry. Hillenbrand and Matthews have a 76 percent share of the coffin and casket manufacturing industry. Experts and advocates have laid out a range of ideas for restoring healthy competition in the economy and reviving regulators. Some of it would entail new laws and frameworks, which, given the current state of affairs in Washington, seems unlikely — Congress can barely agree to fund the government, let alone enact a major overhaul of the workings of the US economy. But it has happened in the past, and as recently as the 20th century. “What happened in the New Deal was a systemic attack on every aspect of the old order, and the old order was somewhat similar to what we have now,” Stoller noted. But even without sweeping legislation, there’s a lot that regulators, enforcers, and the courts can do now under existing law. The FTC and DOJ can be more active in their scrutiny of mergers and companies’ practices, and judges can strike down deals. After the FTC approved the pharmaceutical company Bristol-Myers Squibb’s acquisition of fellow drugmaker Celgene in November of last year, Democratic Commissioner Rohit Chopra in his dissent warned of the dangers of regulators ignoring obvious risks and instead clinging to the status quo. “When watchdogs wear blindfolds or fail to evolve with the marketplace, millions of American families can suffer the consequences,” he wrote.