Welcome to The Corner. In this issue, we introduce Open Markets’ new webpage about our body of work on supply chain monopoly and systems fragility, we discuss Sally Hubbard’s recent testimony to the U.S. Senate about tech platforms, and we explain our comment to the USDA regarding proposed rule changes to the Packers and Stockyards Act. To read previous editions of The Corner, click here.
Coronavirus and the Fragility of Industrial and Financial Systems – An Open Markets Primer
In recent weeks, people around the world have watched in horror as key supply systems have failed or come close to failing, in ways that have greatly exacerbated both the health and economic threats posed by the coronavirus pandemic. Problems include a severe shortage of masks and respirators to protect front-line medical workers and the public at large, and a likely shortage of ventilators for people suffering from the disease. Problems also include the cascading shutdown of many large-scale production systems, such as automobile manufacturing, because of the shutdown of highly concentrated parts production systems, with tens of thousands of manufacturing workers joining the ranks of the unemployed.
These are issues that the Open Markets team knows a lot about. Indeed, our work grew out of a book that Barry Lynn published in 2005, called End of the Line: The Rise and Coming Fall of the Global Corporation (Doubleday), which in turn was based on a 2002 article in Harper’s Magazine, “Unmade in America.” In those works, Lynn provided pioneering research and reporting on how how concentration of capacity made vital production systems subject to cascading and potentially catastrophic collapse because of any of a variety of shocks, including pandemics.
In the years since, the Open Markets team has covered this topic in greater depth than any other group of researchers and thinkers, whether in academia, government, or the private sector, with the partial exception of Yossi Sheffi at MIT and the University of Minnesota epidemiologist Michael Osterholm. This includes pioneering analyses of the effects on international supply systems of the 2008 Lehman Brothers crash, of the 2011 Tohoku disaster in Japan, and of Superstorm Sandy in 2012. It also includes extensive discussions of the complicated and highly dangerous political dimensions of such extreme industrial interdependence.
At Open Markets, we understand that Americans are still in the very early stages of making sense of the threats posed by the coronavirus pandemic and the resulting crash of stock markets around the world. But for those who seek to understand why these events have proven to be so disruptive, and what we can do to prevent a repetition in the future, we have created a new primer on our website, here, which includes links to a number of pioneering articles and papers on these issues.
And read a recent interview of Lynn by David Dayen of The American Prospect here.
In Senate Testimony, Sally Hubbard Condemns Self-Dealing by Platform Monopolies
Open Markets Institute’s Director of Enforcement Strategy Sally Hubbard testified on March 10 before the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights about self-preferencing by dominant digital technology platforms.
The dominant technology platforms Google, Facebook, and Amazon have the power to pick winners and losers in the economy, in ways that pose huge threats to American democracy and the American dream, Hubbard said. Hubbard’s testimony detailed how systemic weaknesses in antitrust policy have helped technology giants attain their market power. Sen. Amy Klobuchar, D-MN, led the hearing, which took place on the same day that she introduced new antitrust legislation. Klobuchar said, “We have a major monopoly problem in this country, which harms consumers and threatens free and fair competition across our economy. Companies need to be put on notice that exclusionary behavior that threatens competition cannot continue.”
In her testimony, Hubbard cited many instances in which these platform monopolists exploited their power to engage in various forms of self-dealing, by placing their own products ahead of those of companies that depend on their services to get to market. Hubbard cited multiple instances in which Amazon had manipulated search results in order to placeAmazon’s branded products in front of the eyes of potential buyers. Hubbard also detailed similar behavior by Google and Apple, and she made clear that this behavior harms citizens both as sellers and buyers within the market.
Hubbard presented many solutions to this problem. Hubbard emphasized the historical importance of structural separation, which would prohibit technology platforms from providing multiple competing services that dominant platforms can manipulate in their favor. Hubbard provided context by explaining how structural separation prohibitionshave routinely been used in the banking, television, and telephone industries.
Hubbard’s full testimony can be viewed here.
The entire Judiciary Committee hearing can be watched here.
USDA Rule Change Frees Meatpackers to Abuse Farmers and Ranchers, Open Markets Says in Official Comment
The Open Markets Institute argued strongly against proposed changes to the Packers and Stockyards Act (PSA), in a comment filed with the U.S. Department of Agriculture (USDA) on March 13. In our comment, we urged the agency to revive its existing authority under the PSA to curtail meatpackers’ abusive tactics against farmers and to stand up to judicial overreach that has weakened the department’s enforcement authorities.
Open Markets argues that the PSA is an essential statute that protects farmers and ranchers from abuse by monopolistic processors while establishing fair terms of trade in livestock and poultry markets. Unfortunately, during the past several decades, federal courts have corrupted the text of the statute and undermined farmers’ ability to challenge mistreatment by meatpackers. Interim, Obama-era rules would have lessened the burden for farmers to seek justice under the PSA, but the current USDA management reversed these rules on the specious grounds that they conflicted with court precedent. The agency’s proposed replacement would leave farmers exposed and would make matters worse by introducing vague and corporate-friendly criteria that could codify abusive industry practices.
In response to these proposed rules, Open Markets argues that the USDA has clear authority to issue rules that contradict decades of poor court precedents. Specifically, Open Markets urges the USDA to uphold its long-standing position that harm to industry-wide competition is not necessary to violate the PSA. Open Markets asks the agency to issue new rules that reaffirm this stance and that clearly lay out examples of unfair, abusive, and discriminatory conduct by meatpackers. These changes would reaffirm Congress’ intent in enacting the PSA to broadly protect farmers and ranchers fromconcentrated corporate power.
Open Markets’ comment is available here.
Read related work by Open Markets here:
- Claire Kelloway: Trump’s USDA Sides With Corporate Meatpackers Over Farmers, in Latest GIPSA Proposal(Food & Power)
- Claire Kelloway: Farmers Speak Out About Meatpacker Mistreatment, Call on USDA for Stronger Protections(Food & Power)
- Claire Kelloway: Trump Administration Guts Office Designed to Protect Farmers from Ag Monopolies (Food & Power)
- Claire Kelloway & Sara Miller: Addressing Monopolization in America’s Food System (Open Markets Institute)
- Lina Khan: Obama’s Game of Chicken (Washington Monthly)
🔊 ANTI-MONOPOLY RISING:
- DOJ Issues New Price-Fixing Warning as Coronavirus Outbreak Fuels Demand for Masks and Health Products.The Department of Justice’s (DOJ) new Procurement Collusion Strike Force warned that it will be monitoring and bringing criminal charges against any companies or individuals who engage in price-fixing or rigging bids for necessary health equipment such as gloves and masks. This specifically includes monitoring collusive practices together with local, state, and federal agencies. Attorney General William Barr said that the “DOJ stands ready to make sure that bad actors do not take advantage of emergency response efforts, health care providers, or the American people during this crucial time.”(ABC News)
- Seventh Circuit Revives Key Lawsuit Against Syringe Monopoly. The Seventh Circuit Court of Appeals revived an important antitrust lawsuit against Becton Dickinson, the monopoly provider of certain syringes and IV catheters. In April 2019, Open Markets Institute submitted an amicus brief to the court advocating on behalf of the plaintiffs against Becton Dickinson. To explain the importance of the case, Open Markets’ Director of Enforcement Sally Hubbard said, “BectonDickinson’s closure of distribution channels has impeded the introduction of safer options for syringes and needlesticks, which makes it harder to guard against the transfer of HIV, hepatitis B, and hepatitis C. We applaud the Seventh Circuit for taking these steps, which could help to prevent the needless transmission of dangerous diseases.” (Bloomberg Law)
- A New Competition Framework for the Digital Economy. The Competition Law 4.0 commission, a council of private and public experts in competition law created by Germany’s Federal Minister for Economic Affairs and Energy Peter Altmeier to create recommendations for EU competition law, just published the English translation of its September 2019report. The commission concluded that consumers need more control over their data, greater adherence to clear rules by dominant platforms, enhanced legal certainty in the digital sector, and stronger institutional linkage between competition law and other digital regulation. The commission wrote that “the strengthening of consumer autonomy can be an important instrument to facilitate access to consumer data and to avoid the emergence of competition problems.” (FederalMinistry for Economic Affairs and Energy)
- USDA Packers and Stockyards Act Rule-Making Comments. A group of state attorneys general asked the USDA to abandon a proposed rule change that would allow the secretary of agriculture to entrench anti-competitive practices by deeming them customary in an industry. The state attorneys general of Minnesota, California, the District of Columbia, Illinois, Iowa, Nevada, New Mexico, and Virginia oppose the USDA’s proposed rule under §201.211(d) of the Packers and Stockyards Act, which instructs the secretary of agriculture to determine whether a business confers unreasonable advantage outside of what is customary in an industry. They argue that the secretary should instead “adopt stronger rules that would actually fulfill Congress’ intent to curb anti-competitive practices.” (Office of Agriculture)
- Members of Congress Raise “Serious Concern” About College Textbook Merger. In a letter submitted to the Antitrust Division of the DOJ, Reps. David Cicilline, D-RI, and Jan Schakowsky, D-IL, urged the agency to investigatethe planned merger between Cengage Learning Holdings II and McGraw-Hill Education Inc. Currently, Cengage has 24%of the market, and McGraw-Hill has 21%, which means the deal would bring 45% of the market under the control of one corporation. (Reuters)
- France Fines Apple $1.2 Billion for Antitrust Issues. France’s antitrust regulator accused Apple of making its wholesalers Techdata and Ingram Micro charge the same prices as Apple’s retail stores and of leveraging Apple’s economic power over these firms. French Competition Authority President Isabelle de Silva announced that this move by Apple is “sterilizing the wholesale market for Apple products.” (The New York Times)
📝 WHAT WE’VE BEEN UP TO:
- Open Markets submitted a public comment to the Federal Trade Commission (FTC) Workshop on Non-Compete Clauses. The comment calls for a rule to prevent employers from making an employee, potential employee, or independent contractor sign a non-compete clause. The rule would also prevent the conditioning of employment based on the signing of the clause or threatening to enforce the clause against an employee.
- David Dayen of The American Prospect interviewed Barry Lynn about his pioneering work detailing how concentration of industrial capacity can destabilize supply chains in ways that threaten the security of individuals and the nation as a whole.
- Open Markets Fellow Beth Baltzan wrote an article in Barron’s discussing the fragility of our supply chains and how the outdated structure of our multilateral trading system has contributed to this fragility. Anti-competitive behavior, monopolization, and offshoring by companies and governments have made our trading system vulnerable to pandemics such as COVID-19, and rules must be rewritten to benefit society and promote greater resiliency.
- Open Markets was cited in the oral argument of the antitrust case Shawne Alston v. NCAA, which is now before the Ninth Circuit. The lawsuit was filed against the NCAA on behalf of former and current college football and basketball players, who allege that the NCAA colluded to restrain intercollegiate competition and deprive them of the right to a competitive income. In the cited amicus brief, Open Markets explains how the district court’s rule of reason analysis and the Ninth Circuit’s earlier O’Bannon decision had undercut the antitrust protection of these athletes.
- Sandeep Vaheesan spoke to the Dallas Observer about the FTC’s investigations into companies violating competition law.”On the one hand, you have them announcing these big investigations. But then when it comes time to challenging violations of the law, they’re doing virtually nothing,” said Vaheesan.
- Daniel Hanley spoke to The Hill about new legislation by Senate Democrats that could potentially strengthen the power of antitrust enforcement agencies such as the FTC and DOJ. “While I think these changes are necessary and they represent a step in the right direction, they ultimately will be insufficient,” Hanley said.
📈 VITAL STAT:
The value of the proposed merger between pharmaceutical giants AbbVie and Allergan. The potential deal, which was announced in June 2019, would create the world’s fourth largest pharmaceutical company. The two pharma behemoths signed a consent decree with the FTC on March 17 to sell off three drugs, in order to win FTC approval of the deal. Abbvie says it expects to close the deal in May.
📚 WHAT WE’RE READING:
- “Antitrust Enforcement in Labor Markets: The Department of Justice’s Efforts” (Santa Clara Law Review, Michael Murray): Discusses the views, approach, and enforcement activity of the DOJ’s Antitrust Division on labor law and no-poaching agreements, as well as the DOJ’s amicus program.
- “Mandatory Arbitration Clauses in Consumer Contracts: A Legally Permissible Means of Denying Consumers the Constitutional Right to Litigate Contract Disputes in Court and the Right to Trial by Jury” (North East Journal of Legal Studies, Victor D. Lopez): Details the history of arbitration clauses in consumer contracts and the clauses’ interpretation by courts, as well as the history of the Federal Arbitration Act of 1925.
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