The Corner Newsletter: July 23, 2020
Welcome to The Corner. In this issue, we explain how exclusionary contracts can result in a form of secret monopolization, and we detail Open Markets’ demand that the FTC ban the practice. We also encourage you to read ILSR’s groundbreaking guide to antitrust on the state level.
To read previous editions of The Corner, click here.
Open MarketsDemands FTC BanDangerous Form of Contractual Monopolization
The Open Markets Institute filed a petition to the Federal Trade Commission (FTC) on Tuesday to ban exclusive dealing agreements, which are contracts that restrict whom a company or person can do business with. Our petition was joined by more than 36 other signatories, including public interest groups, labor organizations, and prominent legal scholars.
Exclusive agreements are routinely used by dominant firms to perpetuate their monopoly power and to suppress competition. Dominant firms typically seek to entrench their monopoly positions by contractually locking in smaller firms and forcing them either to become the sole distributor for the dominant firm's goods or to supply goods or services only to the dominant firm. Exclusive arrangements thus eliminate competitors’ access to other customers, distributors, or suppliers.
In effect, such exclusive arrangements result in a de facto acquisition of control by larger corporations over smaller firms, without the dominant corporation having to spend money buying these other firms. Such deals harm consumers by reducing competition among suppliers and purchasers, in ways that slow innovation and raise prices. They can also harm rival sellers, by making it harder to buy key inputs and services. And they harm investors, who are not compensated when the companies they support are essentially taken over by these dominant corporations.
As an example of how independent business get trapped into monopolies through these deals, consider McWane, the nation’s dominant producer of iron pipe fittings. That corporation forced its distributors to enter into exclusive contracts that prohibited them from purchasing iron pipe fittings from any of McWane’s competitors. If these distributors — many of them independent local businesses — bought fittings from McWane’s competitors, then the distributors would lose the substantial rebates that McWane offered them for entering into these exclusionary contracts.
The exclusive agreements allowed McWane to raise the prices on iron pipe fittings, and thus served as a secret form of monopolization, entrenching and extending McWane’s monopoly power while harming buyers who had to pay McWane’s inflated prices.
The Open Markets petition discusses 28 instances of anti-competitive exclusive agreements and litigation that the FTC and other antitrust enforcers have brought regarding exclusive dealing. The agencies have been successful in punishing well-known corporations such as Microsoft, Visa, and 3M for exclusive dealing.
Despite these victories, the practice remains routine throughout the political economy. That’s why the Open Markets Institute believes it is time for the FTC to use its broad rule-making authority to ban the practice outright. Sandeep Vaheesan, legal director at Open Markets Institute and lead author of the petition, said, “We are asking the FTC to finally put dominant corporations on notice. Will they choose to protect consumers, independent businesses, and workers, or will they let powerful corporations maintain their stranglehold on numerous markets and industries?”
The full petition can be read here.
ILSR Releases Anti-Monopoly Toolkit for State and Local Governments
The Institute for Local Self-Reliance released a groundbreaking report last week that provides a comprehensive view of state and local laws and policy tools that citizens and public officials can use to fight concentration of power. The report outlines eight anti-monopoly tools that cover various industry sectors, such as banking and public utilities, and the report discusses the various enforcement tools available to state attorneys general.
The full report can be read here.
🔊 ANTI-MONOPOLY RISING:
Federal agents arrested Ohio House of Representatives Speaker Larry Householder (R) on Tuesday on charges that he received $60 million worth of payment and favors from a utility corporation to which he had steered state bailout funds. Such payments illustrate how poor regulation of monopolists can result in the corruption of fundamental democratic institutions. (The Washington Post)
California Attorney General Xavier Becerra has launched a new investigation of Google for antitrust violations, according to a report in Politico. The California action would be the fifth by antitrust enforcers into Google’s operations, including probes by the Justice Department and a group of attorneys general from 48 states, Puerto Rico, and the District of Columbia. (Politico)
The Federal Trade Commission (FTC) is considering deposing Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg, The Wall Street Journalreported last Friday. The FTC is seeking to obtain an in-depth understanding of the company’s operations, which the agency could use to negotiate for a more significant settlement from the company for potential antitrust violations uncovered by the agency’s ongoing investigation. (The Wall Street Journal)
The Alcohol and Tobacco Tax and Trade Bureau (TTB) obtained a $5 million settlement from Anheuser-Busch for apparent violations of trade practice laws under the Federal Alcohol Administration Act. The settlement illustrates that many agencies within the U.S. government, in addition to the FTC and the Antitrust Division of the Justice Department, play key roles in enforcing anti-monopoly law. (TTB)
📝 WHAT WE'VE BEEN UP TO:
Sandeep Vaheesan published an article in Democracy exploring how to create a “democratic” Amazon. He examines how Amazon has flourished during the COVID-19 pandemic, while many competing online retailers have failed to stay afloat. Vaheesan proposes several remedies to restrain Amazon’s market power. One remedy he proposes is to impose common carrier regulations on Amazon’s marketplace, so as to prevent discrimination against sellers.
Daniel Hanley published an article in ProMarket about the influence that Facebook has on its users by acting as both a social network and a news outlet. Hanley’s article proposes that antitrust enforcers require Facebook’s platform be interoperable with rival platforms, in order to weaken the corporation’s market power.
Phil Longman moderated an online conference presenting the Washington Monthly’s inaugural ranking of the Best Hospitals in America. The rankings measure individual hospitals on how well they save lives, save money, serve all members of the community, and foster civic leadership. Longman and research associate Udit Thakur contributed three articles to the Monthly’s special issue on hospitals and health care.
Phil Longman was mentioned by the Lown Institute discussing his views on the disconnect between a hospital’s reputation and its actual performance with patient outcomes. Longman and research associate Udit Thakur were also mentioned in the Pittsburgh City Paper, arguing that the cash-flush University of Pittsburgh Medical Center (UPMC) could have easily afforded to halt lucrative elective surgeries in order to comply with COVID-19 restrictions.
Sally Hubbard was quoted in HuffPost saying that state attorneys general had plenty of opportunities to prevent Big Tech from turning into monopolies. “There’s a lot that attorneys general across the country could have done to rein in Big Tech. Most notably, challenging the Instagram and WhatsApp mergers,” Hubbard said. Hubbard’s criticism of Facebook’s half measures of reform was highlighted in a Yahoo Sports article.
Sally Hubbard’s upcoming book, Monopolies Suck, was mentioned in DNYUZ to highlight her critique of the relatively weaker regulations imposed on Apple, compared to other technology giants.
Claire Kelloway’s article on the latest consolidation among apps for food delivery industry was mentioned in The Washington Post, in an article explaining the consequences for restaurants and consumers of the merger between Uber and Postmates.
The Open Markets Institute was mentioned in an article in EN24 about Google promising European competition authorities that the tech giant would not collect the data of FitBit users for advertising purposes. Open Markets and about 20 other organizations urged government agencies to block Google’s proposed acquisition of FitBit, because the move would only further entrench Google’s monopoly position in digital advertising.
Michael Bluhm’s white paper on prescription drug prices was mentioned in The Hill for its proposal to dramatically increase regulatory scrutiny of mergers among pharma corporations, including a bright line rule to prevent any mergers that would give a single drugmaker control of 10% or more of the U.S. market. The op-ed in The Hill, co-authored by FTC Commissioner Christine Wilson, argued that the FTC should continue its current approach to antitrust enforcement.
The Open Markets Institute’s opposition to the recent Justice Department approval of Liberty Media’s acquisition of iHeartMedia was mentioned in Politico and RadioNK. Open Markets argues that the deal will lead to drastically less diversity of listening options for radio listeners.
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📈 VITAL STAT: 15%
The percentage in salary reduction that pilots are being asked to take by Delta, the second-largest U.S. airline, so that these pilots can keep their jobs. Meanwhile, Delta received more than $5 billion in federal bailout money.
📚 WHAT WE'RE READING:
“Better Policy Ideas Alone Won’t Stop Monopolies” (WashingtonMonthly, Jeff Hauser, Max Moran, and Andrea Beaty): The authors describe the need to stop the revolving door used by lawyers to go from regulatory agencies policing antitrust to firms in Big Law defending corporate clients from antitrust scrutiny by those same agencies. The authors call for appointing antitrust regulators who do not have conflicts of interest, to ensure that they enforce the law in the public’s interest. In The American Prospect, Hal Singer makes a similar call for strong regulatory action to stop the revolving door, as he details how Big Tech corporations routinely hire congressional staffers and former employees of regulatory agencies.
“Imbruvica’s Patent Wall” (I-MAK): The report describes how a unique patent strategy with AbbVie’s cancer drug Imbruvica has extended its market exclusivity by nine years. This exclusivity is the period of time that a drug is legally allowed to maintain a monopoly in its drug class; the measure was intended to allow drugmakers to recoup their investments in drug development, but many pharma corporations now manipulate the process to lock in monopolies. AbbVie’s strategy has allowed it to raise the price the drug by 57% in the five years since its release in 2014.
BARRY LYNN’S NEW BOOK:
Liberty From All Masters
The New American Autocracy vs. The Will of the People
St. Martins Press will publish Open Markets Executive Director Barry Lynn’s new book, Liberty From All Masters, on September 29. The book is Barry’s first since Cornered, in 2010. In it, he details how Google, Amazon, and Facebook developed the ability to manipulate the flow of news, information, and business in America, and are transforming this power into autocratic systems of control. Barry then details how Americans over the course of two centuries built a “System of Liberty,” and shows how we Americans can put this system to work again today. Pre-order your copy here.
Open Markets Employment Opportunities
You can find the full job listings here.
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