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The Corner Newsletter, Feb. 22, 2018: FTC Awakened? — Uber vs. Bill de Blasio — Hidden Student Loan Monopoly

In this issue of The Corner, we explain how a recent congressional hearing signals bipartisan support for more aggressive antitrust enforcement, examine New York Mayor Bill de Blasio’s failure to protect his constituents from Uber’s predatory behavior, and highlight the monopolization of the student loan servicing industry.

February 22, 2018  |  by Open Markets

IS THE FTC ABOUT TO WAKEN FROM ITS ANTITRUST SLUMBER?

For the last few years, the Federal Trade Commission all but vanished as a major player in anti-monopoly enforcement. In part, this was due to a lack of staff. For much of the last year the FTC had only two sitting commissioners. Mainly, however, it was due to ideology.

Two of the most influential recent commissioners—Maureen Ohlhausen and Josh Wright—were strong proponents of libertarian competition philosophy, with its strong pro-monopoly bent. Further, even many recent Democratic appointments tended to take a highly permissive approach to economic power.

But a Senate Commerce Committee hearing on February 14 provided strong signals that the FTC may soon be back in the business of promoting competition in the United States. All five FTC commissioners are being replaced more or less at the same time, which means the character of the agency has the potential to change dramatically. And among both senators and nominees, the libertarian thinking that has long held sway in the Commission appeared to be decidedly out of fashion.

A few highlights: 

  • Sen. Ted Cruz (R-TX), a former director of policy planning at the FTC, has in the past largely opposed government regulations, including net neutrality. But at the hearing last week, Sen. Cruz expressed deep concern about the immense power wielded by Google and Facebook, citing a cover story in Esquire that calls for the break-up of big tech. Cruz appeared especially concerned about the anti-competitive implications of Facebook and Google’s dominance, saying that their “market power, size, and control of public discourse is unprecedented.”

  • Sen. Richard Blumenthal (D-CT) urged the nominees to use the “new populism…sweeping the country” as a mandate to invigorate enforcement and advocacy. “Going beyond the FTC being a resource, I’d also like you to be a champion,” he said. “You have the bully pulpit. You can bring zeal and passion to consumer issues that no one else will do at the federal level.” Sen. Blumenthal also submitted a statement from the Congressional Antitrust Committee into the hearing record.
  • Joe Simons, nominated by President Trump to chair the agency, said he wants to scrutinize dominant firms that wield market power and review the Commission’s enforcement record. “At a high level, I don’t believe that big is necessarily bad,” he said. But he added, “Companies that are already big and influential can sometimes use inappropriate means, anti-competitive means, to get big or to stay big.” In particular, Simons said he was “very concerned” about drug pricing and would explore convening a drug pricing monitoring task force to track anti-competitive price spikes and enable prompt investigations and enforcement actions.
  • In discussing extreme consolidation in agriculture with Sen. John Tester (D-MT), Simons further explained that even when bad mergers cannot be easily unscrambled, the agency can investigate dominant industry players for anti-competitive conduct and target their power through injunctions. Coupled with his written comments, Simons’ remarks suggest he intends to target abusive actions by dominant companies.
  • The only Democratic nominee at the hearing, Rohit Chopra, expressed interest in reviewing barriers to entry in monopolized markets. In particular, he noted that consolidated control over data creates hazards both for consumers and independent businesses. He said, “Data breaches impose great deals of costs on small enterprises. The Equifax data breach led to significant losses for community banks, credit unions, and other financial institutions.”

A fifth slot on the Commission, reserved for a Democrat, still lacks an official nominee. Senate Minority Leader Chuck Schumer (D-NY) has recommended to the White House that it nominate his chief counsel, Rebecca Slaughter, for the position.

 

ANTI-MONOPOLY RISING

  • The Federal Cartel Office, Germany’s competition authority, noted the importance of engaging the public about “bigness” and breaking up dominant tech platforms at the Annual Antitrust Law Leaders Forum, a high-profile antitrust event, two weeks ago. “We can’t ignore this debate,” said head policy official Gunnar Kallfass, speaking in particular about whether the consumer welfare standard is an adequate framework for identifying and policing market power.
  • The U.K. House of Lords, published a report focusing on the threat that Brexit poses to British competition policy. Drawing on work by the non-partisan London-based think tank ResPublica, the report emphasized a “more innovative and responsive approach toward antitrust enforcement and merger control, including in relation to fast-moving digital markets and dominant online platforms.”
  • The Council of Economic Advisors, in a white paper documenting healthcare and drug costs, noted that the pharmacy benefit manager (PBM) industry “suffers from high market concentration.” The paper states that this lack of competition allows PBMs to “exercise undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing.”
  • Democrats in the Virginia House and Senate formed a caucus, the People’s Caucus, to protest a bill proposed by local utility monopolist Dominion Electric. Their action, according to an article by Daniel Marans in HuffPost, signals a growing willingness for politicians to fight against “the aggregation of power and wealth.”

 

WHAT’S MISSING FROM THE PICTURE?

New York Mayor Bill de Blasio’s Answer to the Effects of Predatory Monopoly

A recent New York Times article by Ginia Bellafante recounts the tragic story of New York City livery driver Doug Schifter, who took his life with a shotgun in front of City Hall, in early February. “Implicit in his testament,” The Times writes, “was the anger he felt over the de-professionalization of his work.” A Facebook post Schifter published before he killed himself dovetails with this sentiment. In it, Schifter wrote, “I have been financially ruined.”

New car-hailing technologies have been a boon for riders across the United States, making it far easier to call and pay for taxi services, especially outside downtown areas. But in many cities, including New York, a few corporations, Uber especially, have largely monopolized the market for these technologies, and have used them to pit drivers against drivers in a competition that has sharply cut the already low income of taxi and limousine workers. Just between 2013 and 2016, the gross annual booking of New York cab drivers dropped more than 20%, from $88,000 to $69,000.

As Bellafante reported, New York City Mayor Bill de Blasio responded to Schifter’s suicide by blaming his distress on mental health issues rather than a lack of smart regulation by the city government. “Let’s face it, for someone to commit suicide there’s an underlying mental health challenge.”

Although Bellafante does a fine job reporting the story, she left out key moments in the recent history of taxi regulation in New York that might have helped readers gain a better understanding of whether Mayor de Blasio’s charge was fair. Most important is the story of Mayor de Blasio’s failure to follow through with his own promise in May 2015 to “take a more populist approach” with regard to giant tech companies like Uber.

The Mayor started strong in July 2015, announcing plans to cut traffic in the City by limiting the number of cars that ride-hailing corporations could operate. In a New York Daily News op-ed touting his action, Mayor de Blasio wrote no “corporate giant [should] operate in New York City without basic rules in place to protect the public. And no number of lobbyists or ad campaigns will change that.”

In promising such action, Mayor de Blasio had plenty of company. In May 2014, the city council of Austin, TX agreed to develop rules for the ride-hailing industry, which resulted in a May 2016 requirement that drivers undergo fingerprint-based background checks. Similarly, London’s assembly concluded in December 2014 that the policing of Uber was “woefully inadequate” and set in motion a debate that in September 2017 resulted in London stripping the ride-hailing corporation of its license to operate. In other cities, such as San Francisco, authorities have helped ensure that traditional taxi drivers have access to the same technologies that Uber uses, but without having to yield to Uber’s control.

Uber responded to Mayor de Blasio’s tough talk precisely as he had said it would, with a flurry of lobbying and a tough ad campaign overseen by President Obama’s former Campaign Manager, David Plouffe, policy chief at Uber at the time. The corporation took out ads on buses and on TV, and placed a ‘de Blasio’ section on its app that directed New York users to sign a petition against the mayor’s proposed car cap. Uber also targeted New York City council members with forceful actions, directing Facebook ads, robo-calls, and mailers toward them.

In facing this reaction, New York City did not stand alone. When drivers in Seattle wanted to unionize in March 2016, Uber customer service representatives called the drivers to say that unionizing does “not fit” for the ride-hailing industry. In March 2017, The Times revealed that Uber was using a software program called Greyball to thwart government officials whose job it was to regulate the ride-hailing corporation. Uber used the tactic in Boston, Paris, and Las Vegas, and in countries like Australia, China, and South Korea.

New York’s long history of taxi regulation gave Mayor de Blasio many tools with which to respond. The City has long been a leader in taxi regulation in the United States, and led the way in ensuring wide service at fair rates, and in ensuring the safety and convenience of passengers. New York was also traditionally a leader in ensuring that drivers earn a living wage. One mechanism was creating a form of license—known as a “medallion.” To be sure, the system is not without its flaws, but over the years it has evolved into a highly valuable property for drivers.

Yet, in the face of Uber’s hardball tactics, Mayor de Blasio quickly folded, and all but left Uber to do as it pleased in New York’s streets. Indeed, since Uber’s collapse, a taxi medallion is now valued between $150,000 to $450,000, down from a record $1.3 million in 2014. That has left thousands of New York’s working-class citizens, like Doug Schifter, financially harmed, or even ruined.

 

WHAT WE’VE BEEN UP TO:

  • Marcellus Andrews, Open Markets Board Member, presented at a briefing organized by the Congressional Antitrust Caucus. His testimony, and caucus member Rep. David Cicilline’s (D-RI) keynote speech, drew on Brian S. Feldman’s research about how industry consolidation disproportionately afflicts minority-owned enterprises.
  • Tim Wu, Open Markets advisory board member, published an op-ed in The New York Times exploring how privileging consumer convenience can foster monopoly and homogeneity.
  • Roger McNamee, Open Markets advisory board member, wrote an article in the Washington Post that proposed Facebook offer a subscription-based model to fight against “surveillance, addiction, and manipulation” on the technology platform.

 

A NEW MERGER CONCENTRATES EVEN MORE POWER OVER AMERICA’S STUDENT DEBTORS

Many Americans would agree that student debt is a big problem for the country. Forty-four million Americans collectively hold close to $1.5 trillion in student loans—far more than credit card debt—and the total keeps rising.

Less well-known is that Americans’ student loan crisis is aggravated by a crisis of competition. Only a handful of giant companies control the market for servicing student debt. And last week, two of those companies—Nelnet and Great Lakes—completed a planned merger that has the potential to harm student borrowers and the federal government alike.

As a result of the deal, just three companies will now service 93% of all federal student debt. Nelnet alone will control 42% of the loans held by federal student borrowers.

This means that when the federal government goes to contract for student loan servicing, it will have fewer companies to choose from. This in turn reduces the ability of the federal government to negotiate reasonable prices and terms of service on behalf of students.

“The fewer [companies] you have, and the more concentrated [the market] becomes, the harder it is for the government to get the best price,” said David Bergeron, former assistant secretary for post secondary education under the Obama Administration.

The highly concentrated market for student loan servicers also creates a “too-big-to-fail” problem, according to Bergeron and Colleen Campbell, the associate director for postsecondary education at the Center for American Progress. If Nelnet were to fail for whatever reason, the other servicers lack the capacity to fill the void.

 

WHAT WE’RE READING:

  • “Monopoly’s New Rules” (The Nation): A special issue devoted to the effects of monopoly on workers, communities, and small businesses. The edition also includes interviews with European Union Commissioner for Competition Margrethe Vestager and Sen. Elizabeth Warren (D-MA).
  • “Silicon Valley’s Tax-Avoiding, Job-Killing, Soul-Sucking Machine” (Esquire, Scott Galloway): New York University Professor of Marketing Scott Galloway’s anecdote- and data-rich case for breaking up Google, Amazon, Facebook, and Apple.
  • “How to Monitor Fake News,” (The New York Times, Tom Wheeler): The case for requiring Facebook and Twitter to share publicly how their algorithms display posts, news, and advertising.

 

VITAL STAT:

2,569

The number of drug stores that grocery retailer Albertsons Companies will acquire from pharmacy chain Rite Aid, according to an investor presentation detailing the merger of the two corporations. The combination of the third-largest drugstore player and second-largest conventional grocer will result in a single corporation controlling almost 5,000 grocery stores and more than 4,300 pharmacies.

 

? WHAT WE’RE WATCHING:

  • Emerging Markets ‘Techlash’? The Competition Commission of India recently fined Google $21 million for “indulging in practices of search bias” and “leveraging its dominance in the market for online general web search.” In light of the Telecom Regulatory Authority of India’s ban on Facebook’s Free Basics product in late 2016, we’re watching to see if competition authorities in this 1.3 billion person nation are developing a new strategic approach to the platform monopolists.
  • Special Delivery: Amazon is launching Shipping With Amazon (SWA), a delivery service that will compete with FedEx and UPS. Amazon will market the service to third-party merchants who sell on its platform. We’re closely observing how third-party sellers, whose share of total items sold on Amazon is more than 50%, will fare under the new system. We’re also watching to see how FedEx and UPS executives will respond to an action that would appear to threaten the long-term viability of their companies.
  • Food for Thought: Chinese e-commerce company Alibaba and U.S. grocery chain Kroger are engaged in talks regarding a business partnership, according to Reuters. We’re watching to see if the Committee on Foreign Investment in the United States (CFIUS), which recently blocked the acquisition of U.S. money transfer company Moneygram by Alibaba subsidiary Ant Financial, would similarly scrutinize a future deal.

 

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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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