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The Corner Newsletter, July 13, 2018: Judge Kavanaugh: a Blessing to Big Business — Match Group’s March to Power — Amazon’s Latest Target: the Taxpayer

In this issue of The Corner, we look at U.S. Supreme Court nominee Brett Kavanaugh’s extreme pro-corporate record in antitrust cases. We report on the troubling implications of Match Group’s roll-up of dating apps and question its intentions. And we interview Stacy Mitchell on Amazon’s effort to grab power over your local government’s procurement business.

July 12, 2018  |  by Open Markets

Judge Kavanaugh: A Champion of Liberty for Big Business

President Trump this week nominated U.S. Court of Appeals for the D.C. Circuit Judge Brett Kavanaugh to succeed Justice Anthony Kennedy on the Supreme Court. So far, most coverage has focused on Kavanaugh’s record on abortion, the environment, and gun laws. But it is his thinking on antitrust law and corporate power that will most affect America’s economic and political systems.

Perhaps the best indication of how Kavanaugh will view economic concentration comes from his dissent in United States v. Anthem, Inc. In that case, the Department of Justice successfully challenged a merger that threatened to give health insurers more power over consumers, employers, and providers. Kavanaugh wrote that the government had not shown that the merger would be anticompetitive. Kavanaugh admitted that the larger Anthem, working within a more consolidated market, would use its new power to squeeze health care providers. But he then claimed that rather than distributing the additional profits it would earn to shareholders and executives, it would instead share these savings with customers.

In the concurrence, his colleague, Judge Patricia Millett, called Kavanaugh out in highly unusual personal terms, charging him with “appl[ying] the law as he wishes it were, not as it currently is” and noting that it “is not a lower court’s role to ignore on-point precedent so as to adhere to what might someday become Supreme Court precedent.”

In a 2008 merger case, Federal Trade Commission v. Whole Foods Market, Inc., Kavanaugh dissented from a ruling in favor of the Federal Trade Commission blocking Whole Foods’ proposed takeover of rival organic supermarket chain Wild Oats. Kavanaugh said the majority’s decision recalled the “bad old days when mergers were viewed with suspicion regardless of their economic benefits.” In his dissent, Kavanaugh insisted that his colleagues should have simply disregarded a relevant (and still-valid) Supreme Court merger decision, disparaging it as a “1960s-era relic.”

Kavanaugh’s championing of big business is not confined to antitrust cases. For example, in Comcast Cable Communications, LLC v. Federal Communications Commission, Kavanaugh interpreted a 1992 law in a way that overrode the clear intent of Congress and gave cable companies greater power to discriminate against small independent television channels.

Kavanaugh has also said the Constitution grants broad “free speech rights” to cable and broadband providers. In a 2017 dissent, Kavanaugh wrote that the FCC’s (now-repealed) net neutrality rules, which prohibited broadband providers from blocking or throttling internet content, violated the First Amendment rights of Comcast, Verizon, and other telecom companies.

As two of his peers on the D.C. Circuit noted in that case, Kavanaugh’s reading of the First Amendment would give broadband companies a constitutional right to engage in bait-and-switch marketing. Under Kavanaugh’s interpretation, they wrote, a broadband company “could hold itself out to consumers as affording them neutral, indiscriminate access to all websites, but then, once they subscribe, materially degrade their ability to use Netflix for watching video — or even prevent their access to Netflix altogether.”

In his decisions, Kavanaugh has repeatedly claimed to be a champion of “liberty.” His record shows that the liberty he’s defending is the liberty of large businesses to exploit ordinary Americans.

OMI Letter to Patent and Trademark Office Details How Reform Will Cut Drug Prices

President Trump this week condemned Pfizer’s decision to raise prices on about 100 pharmaceutical drugs. He attacked the drug giant for “merely taking advantage of the poor & others unable to defend themselves.” But even as Trump repeatedly decries high drug prices, his administration’s Patent and Trademark Office (PTO) has proposed a rule that could allow drugmakers to jack up prices on even more drugs.

An Open Markets Institute comment on the PTO’s proposed rule explains how patents on trivial reformulations to existing drugs create unjustified patent monopolies that empower big corporations to raise drug prices and thereby harm patients both physically and economically. OMI’s comment asks the PTO to withdraw the proposal if the PTO finds that the proposal would protect and promote prescription drug monopolies.

🔊 ANTI-MONOPOLY RISING:

  • The Federal Reserve Bank of Kansas City announced that its annual summer meeting of central bankers, finance ministers, and academics in Jackson Hole, Wyoming will discuss “Changing Market Structure and Implication for Monetary Policy.” Though few details have been shared about the August 23 to 25 meeting, the title suggests the Fed recognizes that increased market concentration significantly affects the economy.
  • The largest U.S. communications union, the Communications Workers of America, has joined the Freedom From Facebook Coalition in its call for the Federal Trade Commission to break up Facebook. Bloomberg quoted Open Markets’ Deputy Director and Freedom From Facebook Director Sarah Miller talking about the importance of CWA joining the coalition: “It’s a really important signal that we’re having more and more groups become interested in this set of solutions.”

📝 WHAT WE’VE BEEN UP TO:

  • Lina Khan has been hired by Federal Trade Commission Commissioner Rohit Chopra to help the agency craft its approach to regulating technology corporations. Khan was brought to the attention of Chopra through her work as Open Markets’ Director of Legal Policy and her landmark paper, “Amazon’s Antitrust Paradox.” The announcement received wide coverage in PoliticoBloombergThe HillThe Seattle TimesYahoo Finance, and Axios.
  • Barry Lynn spoke about the political and economic dangers posed by Google, Facebook, and Amazon on two panels at the Cercle Des Economistes conference in Aix-en-Provence, in France. This included a “debate” with Xavier Bertrand, President of the Haut-de-France region, and with Alain Weill, head of the French media conglomerate SFR-Groupe Altice. The conference featured speeches by French Prime Minister Edouard Philippe and Christine Lagarde, managing director of the International Monetary Fund.
  • Sandeep Vaheesan wrote an op-ed in The Guardian explaining how antitrust enforcers have “been weaponized as an anti-worker tool – ironically strengthening the grip of the same corporate interests the laws were created to weaken.” Sandeep called on antitrust enforcers to stop prosecuting workers, and on Congress to broaden the antitrust labor exemption to independent contractors.
  • Lina Khan argued in a post for the Take Care blog that the Supreme Court seriously erred in its recent Ohio v. American Express decision. Highlighting the incoherence and lack of novelty within the Court’s understanding of “two-sided markets,” Lina writes that the Court’s decision will unnecessarily “suppress legitimate antitrust suits.” And in Vox, she contends the decision could also give large technology corporations like Google, Amazon, and Uber enormous power over their employees and their customers.
  • Austin Frerick wrote an op-ed for Civil Eats arguing that America’s obesity problem has a monopoly cause, and tends to support powerful entities with ties to agriculture giants.
  • The Economist discussed some of the “Jeffersonian” proposals put forth by participants at the University of Chicago’s Stigler Center’s April 2018 Antitrust and Competition Conference, and specifically named Barry Lynn, Matt Stoller, and Lina Khan of OMI.
  • Kevin Carty was quoted by Morning Consult on their finding that a majority of Republicans they polled support vertical mergers. Carty explained that vertical mergers generally allow powerful corporations to become even more powerful.

Match Group’s March to Power Over the Lonely Hearts of America

What do the dating sites Tinder, Match.com, Plenty of Fish, and OkCupidall have in common? They, along with forty-some other dating services, are all owned by one corporation – Match Group – that has become the biggest provider of online dating services in the U.S. The most recent deal, in which Match acquired Hinge, gives the dating giant that much more power to manipulate its users.

The deal frenzy began in 2009 when Match bought People Media – the owner of 27 dating sites. In 2011, Match’s parent corporation IAC bought the European dating company Meetic. Match now owns every one of the top four most popular dating apps and sites, with the exception of Grindr.

Match Group’s main goal appears to be to acquire more data about individual users. Match’s subsidiaries say they use this data to improve and personalize the services they provide. But like Facebook and Google, Match Group also uses the data to produce highly targeted digital advertising. “The vast amount of data they have is … a resource to enable them to manipulate users,” says Frank Pasquale, University of Maryland law professor and author of The Black Box Society.

Cathy O’Neil, a data scientist and author of Weapons of Math Destruction, says that one of Match’s goals is simply to increase the time users spend on their products. “Their goal isn’t for you to find your spouse; their goal is to have you need to use the app all the time,” she says. It is increasingly well understood that Facebook and Google design their services to addict users. Similarly, Match’s business model is designed to keep users clicking and swiping. Every time a user finds a long-term, exclusive partner, O’Neil says, the corporation has “lost a customer.”

This problem is made worse by the fact that Match Group has such a dominant position over the market. “If all the sites are owned by the same person,” there’s no incentive at all to provide a better service, Pasquale says. If a user grows dissatisfied with Tinder, chances are good that they will turn to another Match property, like Hinge or OkCupid, because Match owns so many of the most popular apps.

The fact that Match Group’s data is about dating – a uniquely personal and intimate part of people’s lives – may actually give the corporation more power to target ads and keep users hooked to their products, O’Neil says. “It’s a goldmine for [identifying] vulnerability,” she says. And data about feelings like vulnerability is profitable. Advertisers can use such data to target insecure users, such as by selling them makeup or clothing. The mass of data is also of value to Match Group itself, which can use it to fine-tune its apps according to people’s emotional states.

Facebook is known to have changed its news feed to emotionally manipulate its users, and there’s little reason to think Match would not do the same. “That’s what scares me about the idea of having a commercial interest in dating,” O’Neil says. “If they succeed in their goal, they not only have loyal users, they’ve changed our culture.”

📚 WHAT WE’RE READING:

  • “The Structural Presumption and the Safe Harbor in Merger Review: False Positives or Unwarranted Concerns?” (Antitrust Law Journal, John Kwoka): In an important new paper, antitrust economist John Kwoka discusses “structural presumptions” in merger reviews, or the theory that mergers between corporations over a certain market share level should be presumed anticompetitive. Kwoka wrote that his study of mergers “support[s] a strong presumption that market concentration past some point correctly predicts, with high probability, that a merger will be anticompetitive.”
  • “Tech’s ‘Dirty Secret’: The App Developers Sifting Through Your Gmail” (The Wall Street Journal, Douglas MacMillan): Following Facebook’s Cambridge Analytica scandal, and despite claiming to have stopped scanning your email, Google “continues to let hundreds of outside software developers scan the inboxes of millions of Gmail users.
  • “Facebook, Google and the Death of the Public Square” (The Atlantic, Franklin Foer): A thoughtful, incisive essay, adapted from a speech first delivered in the Netherlands, on how technology corporations’ reach into our lives hinders our exploration of ideas and undermines a thriving public square essential to a healthy democracy.

Amazon’s Move on Government Procurement Aims at the U.S. Taxpayer

Early last year, U.S. Communities, a for-profit operation that helps state and local government agencies manage procurement, signed a contract with Amazon on behalf of 55,000 of its members to use the online giant to buy office and classroom supplies. In its request for proposal, U.S. Communities estimated that the contract is worth $500 million per year if the expected number of school districts, police departments, and libraries sign on to the service.

In the past, U.S. Communities has signed similar deals with Office Depot and Independent Stationers. But the contract with Amazon has raised fears that the corporation will further increase its already great power over suppliers and customers. This week, Olivia LaVecchia and Stacy Mitchell of the Institute for Local Self-Reliance released a report thatdetails how this highly secretive contract could result in higher prices, worse service, and less choice for the public agencies that sign on to it, all at taxpayer expense.

Open Markets spoke with Stacy Mitchell about the report.

OMI: How is Amazon using this contract to increase its power over competitors? 

Mitchell: Part of Amazon’s pitch to cities is that they can still buy from their local suppliers under this contract — it’s just that those businesses will need to become sellers on Amazon’s platform. And so now independent office supply dealers are being pushed to join Marketplace not only by Amazon, but by the cities and schools they’ve been selling to. Amazon wants to be the gatekeeper between local governments and local businesses, and this contract gives it a way to do that.

OMI: Who is affected by this deal, besides customers?

Mitchell: Hundreds of independent office supply dealers are threatened by this. Most of these companies don’t have storefronts, so you wouldn’t necessarily know they exist. But they account for 25 percent of the market nationally and are an important economic force in their communities. They’re highly competitive on a level playing field … [D]ata suggest that these local dealers are significantly cheaper than Amazon Business.

OMI: What exactly will happen to these companies if they join Marketplace?

Mitchell: It’s a bitter pill. It would mean giving up their independence and handing over their data and 15 percent of their revenue to their largest competitor. It would mean letting Amazon control their fate.

OMI: What’s Amazon’s broader strategy here? 

Mitchell: Amazon’s making similar moves to go after federal spending. And in both cases, it’s leveraging its sway with governments not only to sell goods itself, but to entrench its dominance as the platform through which other businesses have to go to reach their buyers. This contract also nets Amazon a flood of new data about cities and school districts, and about the firms that supply them. This gives Amazon more leverage — to force competitors onto its platform and levy a kind of private tax on their sales, and to manipulate and begin to displace government itself.

OMI: What can communities do about this??

Mitchell: Cities can reject this deal. They can decide not to sign on to this contract, and if they have already, as about 1,500 have so far, they can stop using it … The good news in our report is that cities, which have been on the sidelines of the anti-monopoly movement, now have a concrete way to stand up to Amazon’s power.

📈 VITAL STAT:

1.6

The global average markup, or ratio between a product’s price and cost, corporations were able to charge in 2016, up from 1.1 in 1980, according to a new working paper by Jan De Loecker and Jan Eeckhout. The authors explain that  “to study market power, we need to estimate markups.”

👀 WHAT WE’RE WATCHING:

  • Smash and Grab: Singapore’s Competition and Consumer Commission has called out Uber’s merger with ride-hailing corporation Grab, stating the move has “substantially lessened” competition in the market. In March 2018, Uber agreed to merge its operations into Grab in exchange for a 27.5 percent stake in the corporation. The Commission is threatening to unwind the deal following reports of increased prices and decreased service quality. Uber and Grab have two weeks remaining to respond before the Commission’s final decision is released.
  • Fine by Me: For Facebook’s role in the Cambridge Analytica data leak scandal, the UK government has fined the technology corporation $660,000. Although the fine represents a small fraction of Facebook’s annual revenue, it is the maximum amount the British Information Commissioner’s Office can bring against the corporation. We’re watching to see if enforcers around the world follow suit and whether the price tag on this scandal will climb higher.
  • Déjà Vu All Over Again: Only three months after Facebook boss Mark Zuckerberg faced similar questions, Republican leaders on the House Energy and Commerce Committee sent letters to Alphabet’s and Apple’s CEOs asking for information by July 23 on how they collect, use, and share their customers’ data. We’re watching to see how legislators and antitrust enforcers respond to these giant technology corporations’ enormous power over their users’ information.

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Image credit: tolgart and malerapaso via iStock.

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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