Welcome to The Corner. In this issue, we focus on Congress’s plan to investigate platform monopolists and highlight a new study that details how mergers can lead to sharp cuts in product variety.

Congress Opens Investigation of Internet Monopolists

Rep. David Cicilline, the Rhode Island Democrat who chairs the House Subcommittee on Antitrust, Commercial, and Administrative Law, last week announced plans to hold a series of hearings over the next 18 months focusing on platform monopolists, including Amazon, Facebook, Google, and Apple. The Justice Department and the Federal Trade Commission meanwhile agreed that the DOJ would lead any antitrust investigations into Apple and Google, while the FTC would handle Facebook and Amazon. There have been press reports that the DOJ is “gearing up” to investigate Google on antitrust issues.

The Open Markets Institute strongly applauded the House for opening those bipartisan hearings, calling it “the first step towards the substantive restructuring of these corporations, and the restoration of an open and democratic economy in America.” That step began yesterday when Open Markets Director of Enforcement Strategy Sally Hubbard testified in the subcommittee’s first hearing on how online platforms affect a “free and diverse press.” Hubbard said, “Weak antitrust enforcement deserves a large part of the blame for publishers’ lack of bargaining power and alternatives to Facebook and Google, and it set the stage for these platforms to extract the fruits of publishers’ labor.” (Read or watch Hubbard’s testimony here.)

Media coverage of the developments relied on many members of the Open Markets team. Barry Lynn was quoted in The New York Times andBloomberg, mentioned in Politico’s Morning Tech newsletter, and interviewed on TV by Bloomberg. Sarah Miller was quoted in other coverage from The New York Times. Sally Hubbard’s invitation to testify was covered by Bloomberg, The Hill, The Washington Post, and Time, and CNN’s Brian Stelter interviewed Sally on Facebook, Google, and local journalism. The Open Markets Institute was cited in Wired, The Seattle Times, and The Atlantic, which observed that “a new wave of antitrust scholars, now centered at the Open Markets Institute” have argued against the current understanding of antitrust harm, which focuses too narrowly on consumer price.

New Study Details How Mergers Can Lead to Sharp Cuts in Variety and Choice

A new study finds that enforcers’ current approach to competition policy has led to a significant decline in the variety of goods available to consumers.

Economist Mico Qianyu Mao’s examination of a merger between two of the country’s biggest four shampoo manufacturers found that the combined corporation “increased its prices, and dropped 9 out of 45 products.”

The economic consequences of eliminating product lines are “significant,” writes Mao, “and should be included in antitrust authorities’ analyses of mergers.”

Mao studied the 2011 acquisition by consumer goods corporation Unilever of hair products company Alberto Culver for $3.7 billion. At the time, Unilever and Alberto were the second- and third-largest makers of shampoo in a market where the top four corporations had 75 percent of sales.

According to Unilever’s press release at the time, the deal created “the world’s leading company in hair conditioning, the second largest in shampoo and the third largest in styling.”

The Justice Department required the merged company to sell off its Alberto VO5 brand but otherwise approved the deal.

Mao’s study indicates that the present system, with law enforcers focusing almost entirely on how a merger will affect a product’s prices, is deeply flawed. Jose Azar, an economics professor at the IESE Business School at the University of Navarra, says part of the reason is that it is “technically difficult” for economists “to model the decision of which products to introduce” or “remove … from the market.”

Mao’s paper proposes an alternative model to evaluate mergers between competitors. This model would predict how a merger affects not only price but also products offered. Mao says that her model would have correctly forecast eight out of nine reductions in product variety.

Mao adds that the consequences of the merger would have been even worse if the Justice Department had not required the sale of the Alberto VO5 brand. She projects that the merged company would have discontinued four more products than it did and that prices would have gone up further. That’s in large part because Alberto VO5 and Suave, owned by Unilever, would have been the only producers of value shampoos, or shampoos whose price ranges from one to three dollars per pound.

Mao’s paper is one of a body of empirical work finding that the antitrust approach of the past few decades simply has not been working. Northeastern University economist John Kwoka, most notably, has done groundbreaking work on how mergers and other combinations not only lead to higher prices, but also to declines in innovation and other non-price effects.

The Open Markets Institute has long warned that consolidation can result in sharp cuts both in the variety and quality of products available to buyers. The tendency of monopolists to strip mine industrial systems was a central point of Barry Lynn’s books End of the Line (2005) and Cornered(2010).

Open Markets has long made clear enforcers should refocus competition policy back on dispersing economic and political power, with traditional bright lines rules. Such rules, based on more straightforward descriptive factors like market share, should replace the vague, highly subjective, and easily manipulated standards that have been used since the 1970s.

ANTI-MONOPOLY RISING:

• House Speaker Nancy Pelosi, in tweets announcing the House’s hearings on “dominant digital platforms,” said, “Unwarranted, concentrated economic power in the hands of a few is dangerous to democracy – especially when digital platforms control content. The era of self-regulation is over.”

• New York Attorney General Letitia James is leading a group of 10 states suing to block T-Mobile from completing its blockbuster acquisition of Sprint. The complaint, filed yesterday, noted that besides hurting competition in the market for wireless service, “[t]he merger will also negatively impact the entire ecosystem of businesses and significant segments of the American economy that depend on mobile wireless telecommunications services. “

• D.C. Superior Court Judge Fern Flanagan Saddler ruled that District of Columbia Attorney General Karl Racine could start “obtaining all of the evidence proving that Facebook broke District law and did not follow its own policies to protect the privacy of more than 340,000 Facebook users who reside in the District.” Saddler was ruling on a lawsuit brought by Racine against Facebook for breaking D.C. consumer protection law in connection with the Cambridge Analytica scandal.

• The Delaware Court of Chancery ordered Facebook to release internal information to shareholders investigating how Facebook allowed Cambridge Analytica access to millions of users’ information.

• On Thursday, Maine banned internet providers from “using, selling or distributing consumer data without their consent,” The Hill reported. Maine also passed a law giving loggers and wood haulers in the state the right to bargain collectively when selling their services.

WHAT WE’VE BEEN UP TO:

On Monday, the Open Markets Institute released a second round of data detailing concentration in health care markets including dialysis, orthopedics products, and syringe manufacturing. Open Market Policy Director Phil Longman, announcing the release of the new data, explained, “What this report shows is that exorbitant prices in health care are largely a symptom of increasingly concentrated health care markets and that more rigorous antitrust enforcement is essential to solving America’s healthcare crisis.”

You can read Axios’ coverage of the release here and you can view the data yourself here.

• The Open Markets Institute filed two comments with the Federal Communications Commission regarding a proposal to lift ownership restrictions on local television and radio stations. Open Markets co-signed a comment by Marshall Steinbaum, Public Citizen, Open MIC, Public Knowledge, and the Artist Rights Alliance that showed how concentration in ownership can exacerbate discrimination based on gender or sexual orientation in the music industry. In its own separate comment, Open Markets discussed how ownership concentration can hurt smaller or rural communities and why digital streaming alternatives like Hulu don’t justify lifting the limits.

• The Freedom From Facebook campaign flew a banner saying “Break up Facebook! Save Silicon Valley!” over Facebook’s annual shareholder meeting in Palo Alto, California. The Mercury News, The Guardian, and the Financial Times mentioned the banner in their coverage of the meeting.

• Sandeep Vaheesan wrote an article for the Law and Political Economy blog, “Killing Antitrust Softly (Through Procedure).” In it, Vaheesan describes how “the Supreme Court has imposed special burdens on parties seeking to vindicate their rights under the federal antitrust laws.”

• Sally Hubbard spoke at the annual meeting of the Association of American Publishers. Hubbard criticized antitrust enforcers for allowing Facebook and Google to acquire companies and become so big, undermining the financial health of publishers and ultimately hurting free speech.

• Sandeep Vaheesan participated in a panel at the Capitol Visitor Center hosted by the American Constitution Society and Public Knowledge: “Antitrust Lessons from the ‘No Poach’ Case in Silicon Valley.” Vaheesan said that the case brought by the Justice Department against Silicon Valley giants for agreeing not to recruit each others’ employees “helped shatter the myth that the textbook assumption of competitive labor markets somehow matches reality.”

• Sandeep Vaheesan talked about “New Approaches to Antitrust” at the “2019 APPEAL Workshop: Policy Options for the 21st Century.” The title of Vaheesan’s talk was “Cooperative Enterprise as an Antimonopoly Strategy.”

• Sandeep Vaheesan presented at the Law and Society Conference on how antitrust law is “Privileging Consolidation and Proscribing Cooperation.” Antitrust law’s “deference to the consolidation of business property and hostility to horizontal agreements” Vaheesan argued, “have both failed to advance consumer welfare and caused broader economic and political harms.”

VITAL STAT: $2,600,000,000

Amount Google is paying to acquire the data analytics company Looker, according to The New York Times. The announcement came amidst growing public discussion over whether Google has too much power and if it gained it by improperly buying its competitors.

WHAT WE’RE READING:

• “Facebook’s Anticompetitive Lean in Strategies” (SSRN, Liza Lovdahl Gormsen and Jose Tomas Llamos): A comprehensive analysis of Facebook, its power, its abuses, and the antitrust and regulatory solutions societies can adopt to “correct this unacceptable anticompetitive outcome.”

• “The Separation of Platforms and Commerce” (Columbia Law Review, Lina Khan): Why we should consider “structural separations” for platform monopolists, or limits on entering certain markets as well as forbidding competition with people or businesses dependent on monopolists to reach markets.

• “Want to Bust Up Big Tech’s Monopoly Power? Don’t Stop There.” (The Seattle Times, Jon Talton): Why people should also pay attention to “gigantism across the economy.” “[D]on’t stop with Big Tech,” Talton writes.

• “One More Scoop of Vanilla: A New Proposal Looks to Loosen Radio Ownership Rules” (NPR, Marissa Moss): How a proposal the FCC looks likely to approve could allow control of radio stations to continue to collect into a few hands – and further damage the diversity of voices you hear.

• “The Roots of Big Tech Run Surprisingly Deep” (The New York Times, Tim Wu and Stuart A. Thompson): A visually engaging illustration of the over 350 mergers Facebook or Google underwent in the last two decades, with antitrust enforcers allowing all to pass. “As with a basketball referee who never calls a foul,” Wu and Thompson write, “the question is whether the players have really been faultless — or whether the referee is missing something.”

Written by Barry Lynn, Phil Longman, and Matt Buck

Edited by Barry Lynn, Phil Longman, Sandeep Vaheesan, Stella Roque, Claire Kelloway, Garphil Julien, Olivia Webb, and Matt Buck