Open Markets Rejects Proposed Vertical Merger Guidelines, Suggests New Standards
Open Markets Institute filed a comment last week with the Federal Trade Commission (FTC) and the Department of Justice (DOJ) on their newly proposed vertical merger guidelines. These guidelines would regulate how the agencies analyze the potentially anti-competitive effects of vertical mergers.
The proposed guidelines do not remedy the shortcomings of the vertical merger guidelines that have been in effect since 1984, we write. These shortcomings have become only more evident in today’s era, when immense online platforms such as Google, Facebook, and Amazon operate in multiple markets simultaneously.
Vertical mergers pose unique threats to the market, and the proposed guidelines do not address them. Vertically integrated corporations can abuse their market power by squeezing competitors both downstream and upstream in the supply chain. In some cases, this situation causes vertically integrated corporations to compete directly with the companies that depend on the corporation’s services, in ways that create clear conflicts of interest. As an example of these conflicts of interest, Amazon exploits its monopoly position to sell Amazon-produced books or electronics in direct competition with the books and electronics produced by independent publishers and manufacturers.
Vertical mergers also suppress competition by driving out of business the downstream and upstream firms most likely to prosper and compete in the future with the acquiring firm.
Prior to the subversion of antitrust law in the 1970s, the U.S. generally outlawed vertical mergers in which a supplier of a vital service would enter a line of business that put it into competition with its own customers.
OMI and its allies call on the FTC and the DOJ to draft new guidelines consistent with the letter and spirit of the ClaytonAct, which was intended to stop mergers that threaten competitive market structures or tend to create a monopoly. As a model, the agencies should look to the DOJ’s 1968 Merger Guidelines, which prohibit mergers with clear, easy-to-understand market share thresholds. The 1968 guidelines also explicitly reject the argument that an otherwise illegal vertical merger should be allowed because it would create productive efficiencies. We urge the DOJ and FTC to reject their proposed guidelines.
For further reading on the dangers of vertical integration and on the history of U.S. regulation of such corporate structures, Lina Khan’s article The Separation of Platforms and Commerce, in the Columbia Law Review, provides an excellent overview. Khan wrote this article largely while working as director of legal policy for the Open Markets Institute.
More Corporations Embrace Bogus Notion of Two-Sided Markets, As OMI Warned Supreme Court
Bloomberg Law reported last week that a growing number of corporations are using a novel argument – that they are doing business in “two-sided markets” – to protect themselves against antitrust claims. Recent examples include Goldman Sachs and the National Collegiate Athletic Association (NCAA).
The Open Markets Institute has helped lead efforts during the last two years to demonstrate the political and economic dangers of the idea that markets have two “sides,” which was first accepted by the Supreme Court in the Ohio v. American Express case in 2018. Under this defense, powerful corporations claim that otherwise illegal actions against suppliers of goods and services in one market should be allowed because they ultimately benefit the end buyer, or consumer, in a separate market. For example, in the case of credit cards, corporations such as American Express and Visa claim that the way they treat merchants in the market for credit card services should be judged by whether this allows them to deliver lower prices or better terms to consumers in the entirely separate market for consumer credit.
In arguing against the principle of two-sided markets, the Open Markets Institute filed an amicus brief to the Supreme Court in December 2017. In our brief, we argued that because “there is no consensus on what constitutes a ‘two-sided’market … courts will be left to base their analysis [as to what constitutes such a market] on irrelevant aspects … rather than … industry realities.” Open Markets also argued that the reasoning of the decision was so loose that almost any large corporation would be free to use such a defense, in ways that would give these corporations carte blanche to engage in otherwise illegal uses of power against suppliers of goods and services.
Lina Khan, Open Markets’ former director of legal policy, said in 2018 that this kind of “balancing” had never been previously permitted. Open Markets Executive Director Barry Lynn wrote in 2018 that the defense “appears to bless the efforts of companies such as Google, Amazon, and Facebook to dominate dozens of markets.” Technology platforms such as Google and Facebook will likely invoke the defense, particularly as the multiple antitrust investigations into their operations intensify.
🔊 ANTI-MONOPOLY RISING:
- FCC Probe Finds Mobile Carriers Didn’t Safeguard Customer Location Data. The Federal Communications Commission has notified AT&T, Sprint, T-Mobile, and Verizon of their apparent liability following an FCC probe finding that the carriers violated federal law by disclosing their subscribers’ real-time location data. Laura Moy, associate director of the Center on Privacy & Technology, says, “[c]onsumers have no choice but to share highly private information with a provider about everywhere they go … Carriers are not allowed to turn around and sell that location information to anyone with a phone number and a few dollars to spend.” (The Wall Street Journal)
- Unions Push FTC to Study If Amazon Warps the Economy. Several unions, representing more than 5 million workers,have banded together to petition the FTC to investigate Amazon’s business practices. Tim Wu, who reviewed a draft of the petition, explains the petition: “I think the unions here are thinking, ‘There’s a lot of concerns raised by Amazon and the FTC kind of has a blind spot.’” (The New York Times)
- Comcast Advertising Monopoly Claims Revived by Appeals Court. The Seventh Circuit Appeals Court revived claims against Comcast that it leveraged its control over its centralized advertising marketplace to force other telecoms to boycott the services of Viamedia Inc., its only competitor. Sandeep Vaheesan, Legal Director of Open Markets, said,“[m]onopolization claims are tough to win these days, they haven’t won yet, but the Seventh Circuit has told Viamedia it has the right to take these claims to trial, and that’s a significant win.” (Bloomberg Law)
- Justice Department Faults Google for Turning Over Evidence Too Slowly in Antitrust Probe, Hinting at Possible Legal Action. The Justice Department sent a letter faulting Google for delays in providing the evidence required by the legal orders delivered in October 2019 as part of the department’s probe. (The Washington Post)
📝 WHAT WE’VE BEEN UP TO:
- Sandeep Vaheesan wrote an article in Barron’s exploring which competitive practices can be lawfully used by firms. Vaheesan notes how antitrust law establishes limits on business conduct. As such, regulators, courts, and Congress should discuss and decide which corporate behavior violates the antitrust laws, so that these decisions are not left entirely to federal judges.
- Barry Lynn spoke to Marketplace about the risk that COVID-19 poses for global supply chains. “Back then, something went wrong, Toyota went down, but every other company continued to manufacture cars. Today if that happens, if one of those suppliers goes down, all the manufacturing companies go down,” said Lynn.
- Barry Lynn talked to Slow Food about the growth of synthetic, lab-grown food and the decline of agriculture as a major source of food and nutrition. Speaking about industrialization and corporatization, Lynn notes that “Just a few corporations control just about every single item [in supermarkets]. The choice that we’re presented with is a false choice, and if we want real choice, we have to take these systems that have been designed to manipulate us, and control us, and extract money from us, and break them down.”
- Sally Hubbard spoke to the Epoch Times about the federal investigations into the big four tech giants by Congress, the Department of Justice, and the Federal Trade Commission. Hubbard stated that the outcomes of these investigations could be “lawsuits by enforcers over conduct that violates antitrust laws, the unwinding of mergers deemed to have been anti-competitive, and new laws or regulatory rules governing Big Tech.”
- Sandeep Vaheesan spoke to Bloomberg Law about Viamedia’s antitrust lawsuit accusing Comcast of monopolization. Viamedia says that Comcast forced an advertising clearinghouse known as Interconnect to boycott ad placement services offered by Viamedia. “Monopolization claims are tough to win these days, they haven’t won yet, but the Seventh Circuit has told Viamedia it has the right to take these claims to trial, and that’s a significant win,” said Vaheesan.
- Daniel Hanley spoke to Recode about Apple’s potential $500 million settlement over its “Batterygate” scandal. The scandal involved Apple releasing software updates for users that purposely slowed down older generation iPhoneswithout notifying consumers. Due to their haste in accepting a settlement, Apple may be trying to “appease federal officials to create a repository of goodwill in hopes of mitigating the plethora of antitrust remedies that can be imposed;history has shown that being aggressively adverse does not bode well,” said Hanley.
📈 VITAL STAT:
📚 WHAT WE’RE READING:
“The Case for ‘Unfair Methods of Competition’ Rulemaking” (University of Chicago Law Review, Rohit Chopra and Lina M. Khan): Makes a case for FTC rules to supplement judgments in antitrust cases, because the federal courtshave failed to create a strong and reliable antitrust regime. The authors argue that rule-making would reduce enforcement costs, reduce ambiguity, and increase democratic participation.
- “Coronavirus and the Politics of Care” (Law and Political Economy, Open Markets Academic Advisory Board member Amy Kapczynski): Examines the political economy of pandemics. Kapczynski notes that the negative characteristics of our “socio-legal context” will undermine the response to the spread of the coronavirus.
“Antitrust as Public Interest Law: Redistribution, Equity, and Social Justice” (Sage Journals, Dina I. Waked): Discusses how framing antitrust law as public interest law can potentially reduce poverty and address inequality.
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