The Corner Newsletter, April 5, 2018: Trump's Amazon Attack–The High Cost of Healthcare Concentration–Who Really Owns FB Data?

April 5, 2018 Open Markets

In this issue of The Corner, we address Trump's attacks on Amazon, highlight an important new study that shows medical costs are higher in concentrated markets, and look at who really owns the data that Facebook collects.

Amazon is a threat to Democracy. So is Trump’s Targeting of the Corporation.

Amazon poses many grave threats to the wellbeing of the American people. The corporation was built to monopolize multiple markets vital to the functioning of our society and democracy. It uses its power in ways that harm the interests of workers, entrepreneurs, authors, musicians, and innovators, as well the public at large and communities from coast to coast. At Open Markets we began to shine a light on Amazon’s power a decade ago. As the following list of articles by our team and close allies details, over those years we helped Americans better understand the structure of Amazon and the nature of its power.

A steadily growing list of political leaders is speaking out against Amazon and its monopolies. This includes senators Elizabeth Warren (D-MA), Marco Rubio (S-FL), Bernie Sanders (D-VT), Cory Booker (D-NJ), and Orrin Hatch (R-UT). It also includes Representatives Keith Ellison (D-MN), Ro Khanna (D-CA) and many other members of Congress. Unfortunately, in recent years, antitrust law enforcers in the Department of Justice and the Federal Trade Commission not only ignored the pressing need to act, they sometimes used their power in ways that actually made Amazon more powerful.

During the last presidential campaign, then-candidate Donald Trump also began to target Amazon’s monopoly. He usually did so while also targeting the Washington Post, which has provided vitally important oversight of his candidacy and Administration, and which is personally owned by Amazon CEO Jeff Bezos. Until last week, the President’s comments had little practical effect. But when he began to threaten to use his power to raise the postal rates Amazon pays to deliver its packages, the corporation’s stock price fell suddenly and sharply.

At OMI we condemn the President’s targeting of specific newspapers and corporations in the strongest terms. Such comments are a threat to the rule of law. They are a threat to the freedom of the press. They have no place in the United States.

By the same reasoning, it is also vital that law enforcers and policymakers across America – at both the Federal and state levels – continue to move swiftly to address the clear and present threats posed by Amazon. To choose to ignore Amazon’s great and fast-growing threat to the American economy and the wellbeing of the American people – because Donald Trump verbally overstepped his constitutional bounds – obviously also amounts to a threat to the rule of law.

At OMI, we believe it is time for leaders in Congress to step up and fulfill their constitutional duty to provide a clear check on this Administration and thereby protect the integrity of America’s antimonopoly law enforcement regimes.

Hospital Merger Mania Drives Up Healthcare Prices

An important new study released in late March by the University of California-Berkeley says that highly concentrated healthcare markets are associated with higher prices for basic medical procedures and hospital stays.

The study, which examined market concentration in California healthcare markets between 2000 and 2016, is especially important because it comes at a time of unprecedented deal-making in the healthcare sector. In the first quarter of 2018, healthcare corporations inked deals totaling more than $150 billion, making this quarter the largest for merger and acquisition activity in more than a decade.

In early December, for instance, pharmacy chain CVS agreed to buy insurer Aetna for $69 billion, and in March, insurer Cigna agreed to purchase pharmacy benefit manager Express Scripts for $68.4 billion. Most recently, Walmart announced it is in talks to buy the last of the big three insurers, Humana.

Many of the deal-makers have defended the mergers as creating more efficient systems and as helping to lower prices. Joining insurers to hospitals or pharmacy benefit manager corporations to pharmacies, proponents say, can reduce administrative expenses and give the combined entity the clout to drive down the cost of medical supplies through bulk purchasing.

But the new study shows that, in San Francisco, for example, higher concentration among hospitals and doctors actually drives up the cost of medical care across the board. Indeed, in the Bay Area, where hospitals have bought out nearly half of all independent physician groups, the price for treating a common cold averages $205. By contrast, in southern California’s Orange County, where there is much less horizontal and vertical concentration among health care providers, the price for treating a common cold averages $131.

The report similarly finds that the prices charged for a wide range of medical treatments, from breast cancer exams to heart bypass surgery, rises strongly wherever hospitals and doctors have merged into giant, integrated health platforms. The bigger they get, the more patients pay.

For instance, it costs 37 percent more in the Bay Area than in southern California for inpatient care for a premature baby—roughly $400,000 compared to $292,000. It costs 28 percent more in northern California for outpatient care to treat lung cancer, with the cost coming to $29,400 versus $22,900 further south.

These price hikes have attracted the attention of California Attorney General Xavier Becerra. Last week, Becerra filed a lawsuit against Sutter Health—one of the two big providers that dominate the market in the Bay Area–for raising prices “that far exceed the prices it would have been able to charge in an unconstrained, competitive market.”

The effects of healthcare concentration also extend beyond just higher prices. In March, 18,000 California nurses nearly struck against Kaiser Permanente, the other big provider in the Bay Area. The nurses voted to authorize a strike in response to pay cuts and chronic understaffing by Kaiser, both of which are typical of monopolistic businesses, which can use their market power to underpay and overwork their employees.

WHAT WE’VE BEEN UP TO:

The Open Markets Institute’s work was cited by The New York Timesfor conducting pioneering research on “Washington’s lenient approach to corporate power.”
Lina Khan spoke about the abuse of economic and political power at ‘A Progressive View of Antitrust,’ an event hosted by the American Constitution Society in Washington, DC. She also appeared on CNBCand NPR’s Weekend Edition to talk about Amazon.
Brian S. Feldman presented on market power in the pharmaceutical supply chain at “The Economics of the Pharmaceutical Industry,” a roundtable discussion hosted by the Roosevelt Institute in Washington, DC.
Kevin Carty was quoted in an article in The Hill about Facebook’s response to a leaked executive memo which argued the corporation’s growth is justified at any cost.

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WHAT’S MISSING FROM THE PICTURE?

Who Owns the Data in Facebook’s Vaults? The Public, Perhaps?

Cass Sunstein, a prominent legal scholar, former Obama administration official, and now Facebook consultant, has published a remarkable Bloomberg column entitled “Cambridge Analytica Behaved Appallingly. Don’t Overreact.” In the column, Sunstein gives his take on the growing controversy over how a British political consulting firm used personal data on 50 million Facebook users to develop targeted pro-Trump ads during the last election.

Sunstein condemns Cambridge Analytica for violating Facebook’s protocols but notes that the use of Facebook data by authorized academic researchers “can do a great deal of good.” He cites examples of researchers using Facebook data to study cancer and heart disease, as well as a Facebook collaboration with economist Raj Chetty to study inequality.

Sunstein compares researchers tapping into Facebook data to the long-established use of government databases to study pressing social, economic, and medical issues. “Data.gov discloses a great deal of information,” he writes, “with more than 230,000 data sets involving health, safety, travel, energy, and the environment.” The only difference, he argues, is that government does a better job than Facebook in protecting the identity of the people whose data it shares. Facebook, he concludes, just needs to make sure it has stronger privacy safeguards.

Facebook certainly does offer researchers a potential treasure trove of data. “There’s an entire world of knowledge inside Facebook,” says researcher Catherine Brooks, director of the Center for Digital Society and Data Studies at the University of Arizona, who has called for better access to Facebook’s information. There are important “questions we can’t answer unless we have access to the data.”

There are many examples. Facebook holds important data on a commonly researched problem, cyber-bullying. Facebook data could expand how psychiatrists understand human nature across cultures, by providing data that counter-acts the Western-centric bias in common social science data sets. And of course, it has important information on elections. Jonathan Albright, a researcher at Columbia University, used a work-around third-party tool and found that in the 2016 election that Russia-bought Facebook pages amassed hundreds of millions of views. (His finding was disputed, but before the dispute could be resolved by looking into the data, Facebook blocked access to the data.)

So here’s what Sunstein’s argument misses. The data on Facebook’s servers is not Facebook’s data, and therefore it should not be up to Mark Zuckerberg to decide who gets to see it. Rather, that decision should rest with the public, just as it does with use of the government data that Sunstein cites.

Facebook users generate the data on Facebook’s servers, not the corporation known as Facebook. Your relationships with friends, a representation of which are stored in Facebook’s servers as ‘data.’ are not Zuckerberg’s relationships. Neither is data on how cancer patients deal with their cancer, or on how inequality manifests itself.

This is true of the data on other corporate servers as well. Whether it’s transportation data on Uber’s servers needed by urban planners or the economic data on Amazon’s servers needed by the Federal Reserve, it’s increasingly clear that this data has the potential to bring enormous benefit to society. Deciding how, when, and whether to use that data can’t be left up to only the decisions of executives at a few for-profit corporations.

This tension between private data and public purposes is not new. Public collection and use of personal data has been part of progressive reform for over a hundred years. Municipal budgeting was a way of taking power from corrupt Tammany-style political machines who could, as Facebook does, pick and choose upon whom they would bestow favors. Rich amounts of information among buyers and sellers, such as that disclosed by the Securities and Exchange Commission, make markets function.

What Facebook is doing by choosing to share data with either Raj Chetty or Cambridge Analytica is exerting power that should be vested in public institutions. The information about our society stored on Facebook’s servers is both a treasure and a danger, but it does not belong to the monopolists with the keys to the servers.

How to properly grant access to data is a complicated question. But it is a public question. Certainly, Mark Zuckerberg should have his say. And he should exercise it, just as we all do, at the voting booth.

WHAT WE’RE READING:

“Opinion on Online Manipulation and Personal Data,”(European Data Protection Supervisor): A report from the EU on how the digitalization of society is increasing the barriers to public involvement in democratic processes.
“When Towns Lose their Newspapers, Disease Detectives are Left Flying Blind,” (STAT, Helen Branswell): How the collapse of local newspapers makes it more difficult to track disease outbreaks in communities.
“Here Are All the Reasons It’s a Bad Idea to Let a Few Tech Companies Monopolize Our Data,” (Harvard Business Review, Maurice E. Stucke): Eight anti-competitive harms committed by tech giants that the prevailing antitrust metric – the “consumer welfare standard” – fails to capture.
“Grocery Wars Turn Small Chains Into Battlefield Causalities,”(The New York Times, Michael Corkery): How consolidation among supermarkets and pressure from Amazon is threatening the fate of unionized workers at small- and medium-sized grocers.

VITAL STAT: 2%

The percentage of pages in the American Economic Review, an influential academic journal of economics, that contained mathematical expressions without an empirical use in 1951, according to a biography of John Kenneth Galbraith. By 1981, that figure had grown to nearly half.

WHAT WE’RE WATCHING:

On The Docket: On April 17, the Supreme Court will hear South Dakota v. Wayfair, a case that touches on whether or not states can collect taxes on retailers that do business in the state but lack a physical presence in it. In 2017 alone, states failed to collect $13 billion in tax payments from online sellers, and this number is only likely to grow as e-commerce become more popular. We’re watching to see if the Court will enable states to collect the taxes they are fairly owed.
Kicked to the Curb: The Third Circuit Court of Appeals last week ruledfor Uber in an antitrust suit brought by eighty Philadelphia taxi companies that accused the ride-hailing corporation of monopolizing the city’s vehicle-for-hire market. We’re tracking to see if the plaintiffs appeal the decision and to see how the courts react to Uber’s construction of a system of private governance in transportation.
Seed of Doubt? The European Commission for Competition approved a $66 billion merger between German seed giant Bayer and U.S agribusiness rival Monsanto on March 21. Given Europe’s long-time opposition to many Monsanto products and actions, approval of the deal raises an important question: are antitrust enforcers in Brussels going easier on deals if the acquiring company is European?

Open Markets Institute