The Corner Newsletter: CVS/Aetna Deal, Republican Tax Bill’s Concentration Problem, Monopoly & Regional Inequality

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In this week’s issue, we cover developments ranging from CVS’s bid to take over Aetna to the ways in which the Republican tax bill promotes consolidation to important new data on how monopoly is aggravating regional inequality.

December 7, 2017  |  by Open Markets


The drugstore chain CVS announced last Sunday that it had agreed to buy health insurer Aetna for $69 billion. Could such a combination conceivably be in the public interest?

Their Spin: The backers of the deal say the combined company could have far greater bargaining power in negotiating with drug manufacturers for lower prices. It might also gain efficiency by driving so-called pharmacy benefit managers out of the supply chain. The role these middlemen play in driving up drug prices has been documented by David Dayen and our own Brian S. Feldman.

Backers of the deal also say it is at least theoretically possible that the combined company’s vertical integration could bring clinical benefits. The combined corporation might, for example, take a more active interest in whether patients were prescribed appropriate drugs and stayed on their medications.

Our Take: All of these possible benefits are far-fetched. Other vertical mergers in health care, such as between hospitals and doctors’ practices, have sometimes brought efficiency gains but the benefits are rarely shared with consumers. Indeed, because of the resulting increase in monopoly power, these mergers have generally brought higher prices and more political control over regulators.

A vertical merger between a payer and provider is potentially even more problematic. The CVS/Aetna combination would forestall competition both from other insurers and from other drug retailers, and thereby lead to less competitive markets in the not-so-long term.

New insurers would, for instance, be unlikely to enter the market because they would lack the monopsony power and market data needed to compete a combined CVS/Aetna in negotiating with drug companies. Meanwhile, other pharmacy chains wouldn’t be able to compete with an entity that is using its own insurance company to drive customers to its stores.

An even larger corporation (Amazon, perhaps) might still be able to compete with a combined CVS/Aetna, but that would bring still more monopoly to the healthcare sector. Using markets to allocate access to healthcare might or might not be a good idea, but using cornered markets is certain to make our broken health care system worse.


  • Rep. Keith Ellison (D-Minn.) introduced a bill that would make antitrust officials gather more information about how mergers have affected prices, workers, and local economies. This sort of data is essential for understanding past mergers, like those in airlines, which have created monopolized industries, raised prices, and devastated regional economies.
  • Rep. Marsha Blackburn (R-Tenn.) discussed how tech platforms limit speech online and collect enormous amounts of data. Her comments illustrate the importance of applying net neutrality principles to companies like Google and Facebook, as well as to the internet service providers those rules were originally designed for.


Regardless of your view of the stimulative or distributional impacts of the tax bill passed last week by the Senate, there will be one clear political-economic impact: this tax bill will accelerate concentration across the economy. The most obvious driver will be the vast sea of cash—estimated at roughly $2 trillion—that American corporations can now begin to bring back ‘onshore’ from the various low or no–tax locations where they stashed it these last few years.

Once on shore, the corporations will begin to put this money to use. Even though Republican tax reform theory holds that executives will invest these funds in new technologies, new equipment, and new ventures – thereby creating jobs – they are much more likely to spend it on buying other corporations, and paying out capital to shareholders via elevated dividends and buybacks.

The internet technology manufacturer Cisco is the third largest holder of offshore cash. The corporation’s CEO Chuck Robbins recently made clear exactly what he plans to do with the money he brings back to the United States, and in what order:

The overall move to lower tax rates, as well as repatriation, we think creates an opportunity, to do all these things: dividends, M&A, buybacks.

Mike McMullen, the CEO of health care technology corporation Agilent, was equally blunt in detailing his plans. The corporation, McMullen told investors, plans to use the new piles of money for “U.S.-based M&A.”

The tax bill’s treatment of private equity is likely to have the same effect of promoting more consolidation. Here the story is slightly more complicated, as the tax reform package may reduce certain incentives for the private equity business model by increasing taxes on leverage. But at the same time, the bill will also increase the returns on buyouts due to lower corporate tax rates. With private equity sitting on record levels of cash, it’s likely that the wave of private equity acquisitions of mid-level companies will accelerate.


  • America’s Monopoly Moment (Watch Here): Our Dec. 6 event with Sen. Elizabeth Warren, Rep. David Cicilline, and Luigi Zingales, among others.
  • Will Trump’s DoJ Crack Down on Massive Vertical Mergers? (Law and Political Economy): Lina Khan writes about the Trump administration’s thinking on vertically integrating mergers like AT&T/Time Warner and CVS/Aetna.
  • Why CVS Wants to Buy Aetna (The Atlantic): Brian S. Feldman is cited in this deep-dive about the proposed healthcare merger.
  • Trump’s Administration is Right to Block the AT&T and Time Warner Merger (Washington Post): Matt Stoller ​argues that the AT&T/Time Warner deal should be blocked.
  • After Latest Merger, Two Companies Control Majority of Wine and Spirits Distribution (Food & Power): Leah Douglas reports on a merger between two massive alcohol distributors.


In a recent NYT article, economist Eduardo Porter notes that smaller cities are falling behind their larger counterparts. Private employment, he explains, grew almost twice as slowly in small metro areas as it did in large ones between 2009 to 2015. Income also grew 50 percent slower.

Porter points to automation, technology, and job displacement as a result of foreign trade to explain this trend. He also identifies what he believes is a paradox:

It is unclear what should be done to slow the decline of small-city America. For what is driving the decline is the flip side of the forces powering the success of large metropolises.

Trade and automation disruption

However, the solution may not be as difficult as Porter imagines. As we’ve reported before, one of the main factors behind regional inequality is lack of anti-monopoly enforcement. Throughout the 20th century, legislation structured the economy so as to preserve local control of business and to prevent a few big investors based in say, New York, from monopolizing commerce in other regions of the country.

Porter himself understands that things used to be different:

In the decades after World War II, the share of jobs in big metropolitan areas actually declined, as employment growth spread to smaller cities.

What he misses is that this was a period of robust enforcement of antimonopoly law, much of which aimed precisely to prevent the physical concentration of capital and control.

Indeed, as our work has shown, this approach to antimonopoly enforcement created an environment for innovative startups to grow throughout the US. But when lawmakers repealed anti-monopoly legislation, beginning in the early 1980’s, these trends reversed.

Metro Areas

Additional Reading

  • How America’s Coastal Cities Left the Heartland Behind (The Atlantic)
  • Why the Economic Fates of America’s Cities Diverged (The Atlantic)

What we’re reading:

  • How Dollar General Became Rural America’s Store of Choice (Wall Street Journal): A report about how the company is expanding and profiting immensely by catering to lower-income shoppers in rural areas and small towns.
  • Underscores, Optimization & Arms Races (Medium): A story about how Google has regulated the internet to serve its own interests.
  • There’s a Digital Media Crash. But No One Will Say It. (Talking Points Memo): A short piece showing how Google and Facebook have monopolized online advertising, driving layoffs and failures in the online media industry.

Vital Stats


Among the top 50 online retailers, Amazon’s share of online shopping purchases on Thanksgiving and Black Friday. Americans spent a record amount of money online during the Black Friday period this year, but Amazon monopolized that growth. Walmart, the second largest online retailer this season, took in only 8.8% of such spending. As Lina Khan has argued, what has allowed Amazon to become so dominant is the failure of recent administration’s to aggressively enforce current U.S. antitrust law.

What we’re watching:

  • A Smartphone Chip Monopoly?: This week, Singaporean chip-maker Broadcom changed its tactics in its effort to capture control over Qualcomm, its U.S. competitor. After Qualcomm rejected Broadcom’s $105 billion bid in November, Broadcom has come back with a plan to nominate a list of candidates to sit on Qualcomm’s board. Broadcom hopes the tactic will lead Qualcomm investors to increase pressure on executives to make a deal. Qualcomm already controls 59% of the market for cellular chips, and if the two corporations merge, the new firm would dominate 60% of the markets for the Wi-Fi and Bluetooth chips in smartphones. Even before Broadcom’s bid, Qualcomm was already facing antitrust scrutiny, in Europe, South Korea, and China. They also face opposition from large customers including Apple.
  • A New National TV Network?: Both the Federal Communications Commission and the Justice Department are reportedly close to allowing Sinclair Broadcast Group to buy Tribune Media. That deal would make Sinclair the biggest owner of TV stations in the country and make the media industry even more concentrated than it is today. Critics say the deal will put too many local TV stations into the hands of a single corporation, with strongly conservative political views.

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

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