The Corner Newsletter, April 2, 2020

 

Open Markets Details Our Proposal to Ban Mergers During the COVID-19 Pandemic and How the Ventilator Shortage Demonstrates How Monopolists Make Us Unsafe

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Welcome to The Corner. In this issue, we discuss Open Markets’ proposal to ban mergers during the COVID-19 pandemic and how the ventilator shortage demonstrates how monopolists make us unsafe.

To read previous editions of The Corner, click here.

The Shortage of Ventilators Demonstrates How Concentration Makes Us Unsafe 

The New York Times reported last week that a 2012 acquisition by multinational medical device manufacturer Covidien stopped the planned production of highly affordable ventilators that the government had sought to produce in case of a national emergency. The lack of ventilators might well cost the lives of Americans suffering from COVID-19. As the Times report made clear, this shortage appears to be the result of an anti-competitive acquisition.

In 2008, Newport Medical Instruments, a small medical device company in California, was awarded a government contract to produce 40,000 ventilators. These ventilators were meant to provide a buffer to meet the demand from hospitals during a national emergency, such as a pandemic, when lifesaving ventilators are needed. By 2010, Newport had developed a highly capable ventilator and had managed to lower the per-unit price to $3,000. However, after Newport was acquired by Covidien for $100 million, Covidien canceled the government contract, and no ventilators were ever produced for the original government project.

As the total number of confirmed U.S. cases from COVID-19 surpassed 200,000 this week, hospitals are increasingly in dire need of ventilators for infected patients. New York Gov. Andrew Cuomo said his state, the hardest hit by the outbreak, will need 30,000 ventilators. The United States, however, only has 12,700 ventilators in the Strategic National Stockpile. The government has even asked Ford and General Motors to produce ventilators to increase our national supply. The ventilator shortage means that medical professionals will have to make difficult decisions, rationing ventilators to infected patients. Many of those hospitalized might die - unnecessarily - as a consequence of these decisions.

Public officials and rivals say that Covidien bought Newport to eliminate Newport as a competitor in the ventilator business. Covidien pulled out of the government contract in 2014, possibly because the deal was not profitable enough for the company and would reduce its profits for its existing ventilator products.

Covidien’s purchase of Newport is an example of a literal “killer acquisition” - one that has life or death consequences for individual Americans and families. This acquisition should have been illegal under antitrust law, as the merger substantially lessened competition in the already highly concentrated ventilator industry.

In recent years, many reformers have adopted a framework of analysis based on the idea that the political economy has been “financialized” by Wall Street, and that this process has shifted economic activity away from making things to making money. But as the Times article on ventilator production makes clear, there is a much more simple explanation. This is that the radical overthrow of anti-monopoly law a generation ago freed monopolists and mercantilists to consolidate power over entire realms of the political economy, and to use their power in ways that degrade and destroy entire systems of production on which we rely for many of our most vital goods and services.

As we noted in the last newsletter, in many instances this has resulted in the destruction of the redundancy of production necessary to ensure the resiliency and stability of the industrial systems themselves. In other instances, it has resulted in the destruction of vital industrial arts and skills, of machines and assembly lines, and of systems of innovation necessary to produce face masks, antibiotics, ventilators, and other manufactured items that keep us healthy and safe.

The Open Markets team has pioneered reporting and analysis of this process of destruction. An early example was the 2005 book End of the Line, with its close analysis of how Boeing was wielding power in ways that destroyed its own supply system. The Open Markets team developed this analysis further in the Harper’s article “Breaking the Chain” in 2006 and in the 2010 book Cornered: The New Monopoly Capitalism and the Economics of Destruction.

Read more of our important and timely work on these issues here:

Open Markets Calls for Ban on Takeovers by Large Corporations and Funds for Duration of Crisis 

The Open Markets Institute last week called on Congress, the Trump administration, and federal and state law enforcement agencies to impose an immediate ban on all mergers and acquisitions by any corporation with more than $100 million in annual revenue and by any financial institution or equity fund with more than $100 million in capitalization. The ban should remain in place for the duration of the present crisis.

These mergers should be prohibited because the Antitrust Division of the Department of Justice (DOJ), the Federal Trade Commission (FTC), and other law enforcement agencies are now unable to effectively evaluate mergers, given the semi-closure of government because of COVID-19.

More fundamentally, the ban is necessary to prevent a wholesale concentration of additional power by corporations that already dominate or largely dominate their industries, especially in ways that may significantly worsen the crisis that now threatens America’s health, social, and economic systems. The history of the panic of 2008 and the subsequent Great Recession instructs us that such a massive, uncontrolled consolidation will result in the unnecessary firing of millions of employees, the unnecessary bankrupting of innumerable independent businesses, a dramatic slowing of innovation in vital industries such as pharmaceuticals, and a further concentration of power and control dangerous both to our democracy and our open commercial systems.

Federal regulators can take up the review of larger mergers once the health crisis has passed, but they should presume that deals pursued by corporations with more than $100 million in annual revenue, and by financial institutions or equity funds with more than $100 million in capitalization, are anti-competitive unless proven otherwise. Meanwhile, Congress should also make any corporate bailouts conditional on recipients not buying their competitors.

We believe these measures are also merited because of the role concentration has played in undermining our public health, industrial, and financial systems in ways that have dramatically contributed to the COVID-19 crisis.

Among other things, we believe such a temporary ban on takeovers by larger corporations and investment funds will immediately help to protect American jobs, promote industrial resiliency, and protect democratic institutions.

Our full proposal can be read here.

ANTI-MONOPOLY RISING:

  • State AGs call on Amazon, Facebook, and Others to Crack Down on COVID-19 Price Gouging. Attorneys general from 33 states called on tech companies to implement strong and proactive policies against price gouging, ”[r]ather than playing whack-a-mole” after the offense. The letter acknowledged that the companies have already taken some steps, but it also points to examples of how the problem persists: “On Amazon, U.S. PIRG found over half of the available hand sanitizers and face masks spiked at least 50% compared with the average price after the World Health Organization declared a global health emergency on Jan. 30.” (CNBC)

  • Kansas Receives More Than $1.75 Million From Natural Gas Antitrust Lawsuit. In 2014, the attorney general of Kansas filed a brief with the Supreme Court arguing that the federal antitrust laws do not prohibit state antitrust action against price-fixing in the natural gas industry. This incident reaffirms the long-standing Supreme Court precedent that the federal antitrust laws do not prohibit the enforcement state antitrust laws and the benefits to consumers that state antitrust laws have in holding corporations accountable. Kansas Attorney General Derek Schmidt said, “Our successful defense of state antitrust law in front of the nation’s highest court made possible this recovery of taxpayer funds exceeding $1.75 million.” (ABC Nebraska TV)

  • Colorado Seeks to Enhance Its Merger Review Authority. The Colorado General Assembly has recently passed a bill that enhances the state government’s merger review authority. The bill repeals a provision that prohibits the Colorado state attorney general from reviewing a merger that has already “been reviewed and not challenged by a federal department, agency, or commission.” The bill awaits the signature of Gov. Jared Polis. (Colorado General Assembly)

WHAT WE’VE BEEN UP TO:

  • Open Markets submitted a comment to the Federal Trade Commission (FTC) on banning noncompete clauses for all workers. The comment lays out the argument for why the FTC can and should initiate a rule to ban these clauses under its authority to police unfair methods of competition. Along with the comment, Open Markets also resubmitted its March 2019 petition on noncompete clauses, which was signed by 46 individual advocates and scholars, as well as by 19 labor and public interest organizations.

  • Open Markets submitted a comment to the FTC on the agency’s proposed settlement with three rent-to-own companies over their agreement not to compete with one another. The FTC found that the three firms - Aaron’s Inc., Buddy Newco, LLC, and Rent-A-Center Inc - had agreed to carefully allocate markets in ways that reduced competition for their services. The FTC did not punish the companies for violating multiple laws, and the proposed settlement only instructs the offenders to obey the law. Such a settlement fails entirely to hold these companies to account for their intentional violations of the law.

  • Journalist Rachel Cohen, in partnership with Open Markets, wrote an article on The Intercept about the process for developing and distributing a vaccine for COVID-19 and about the role of the federal government in managing research, as well as in facilitating the development and distribution of vaccines in partnership with pharmaceutical companies

  • Sally Hubbard was quoted in Global Competition Review regarding a 2012 acquisition of California ventilator manufacturer Newport by rival Covidien. Newport was awarded a contract by the federal government to manufacture ventilators for the government’s emergency reserves, but Covidien backed out of the project after acquiring Newport. The merger is “too literal of an example of a killer acquisition. A paradigm that looks only at the size of deals … is dangerous not just for competition, but for public health,” Hubbard said.

  • Sally Hubbard spoke with Politico about antitrust enforcement of the tech giants during the COVID-19 pandemic and their partnerships with the Trump administration. “The tech giants have been violating the antitrust laws for years. What was always missing was a lack of political will to enforce the antitrust laws against these companies, and those tides have turned in the last year and a half, and so I definitely think if all of a sudden these companies are America’s darlings again, there could be some deterioration of that political will, at least at the federal level,” Hubbard said.

  • Sally Hubbard spoke with CNN Business and Brinkwire about Apple’s acquisition of the weather app Dark Sky and its plan to remove the app from Google’s Android and Wear operating systems. “Interoperability should be a standard merger condition whenever any of the main tech platforms acquire companies, if the merger is going to be permitted,” said Hubbard.

  • Sally Hubbard was quoted in Wired on the topic of potentially banning targeted advertising to stop the spread of disinformation and manipulation. “Today’s digital advertising infrastructure creates disturbing new opportunities for political manipulation and other forms of antidemocratic strategic communication,” Hubbard said.

  • Sally Hubbard was quoted in Broadband Breakfast in an article covering the Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights hearing on March 10. Hubbard’s comments on Google during her testimony before the subcommittee were mentioned, as Hubbard noted that Google has made “hundreds of acquisitions, many of which were illegal under the Clayton Antitrust Act.”

VITAL STAT: $121 billion

The value of the recently approved mega-merger between manufacturing conglomerate UTC and the defense contractor Raytheon.

WHAT WE’RE READING:

  • “Rethinking the Knowledge Problem in an Era of Corporate Gigantism”(Media Rep, Frank Pasquale): Discusses how the  difficulty of aggregating diffuse private knowledge, coined by Fredrick Hayek as the “knowledge problem,” was once a barrier to central planning. In today’s age of artificial intelligence and mass surveillance, however, large corporations aggregate massive amounts of user data, so now these corporations are increasingly able to function as central planners, albeit largely or entirely outside the control of the public.

  • “The Common Ownership Trilemma” (University of Chicago Law Review, José Azar): Argues that an economy cannot achieve portfolio diversification, shareholder representation, and competition at the same time. As a consequence, there is a tendency toward a concentration of common stockholders among competitors

Open Markets Employment Opportunities

You can find the full job listings here.

ANTI-MONOPOLY RISING:

  • FTC Sues to Unwind Altria’s $12.8 Billion Investment in Competitor Juul. The Federal Trade Commission (FTC) in early April alleged that competitors in the e-cigarette market, Altria and Juul, closely monitored each other’s prices and that Altria leveraged its market power to get shelf space over Juul. When Juul became the leading brand in the market, Altria agreed not to compete in exchange for an ownership interest in Juul. (Federal Trade Commission)

  • French Antitrust Regulators Order Google to Pay Publishers to Display Excerpts. Last week, the French competition authority, the Autorité de la concurrence, gave Google three months to reach agreements with publishers and agencies on how Google will compensate them. European publishers have been submitting complaints to regulators for a decade to explain how publishers lose advertising revenue when Google unfairly displays excerpts of the publishers’ content and keeps all ad revenue from those pages. French regulators now say that Google’s actions have caused “serious and immediate harm to media.” (The Washington Post)

  • Indian Court Pressed to Restart Antitrust Probe of Amazon, Flipkart, and Uber. India’s recent deal with Flipkart to deliver “everyday essentials” has renewed concerns about the market power of the company in India, as well as the market power of Amazon and Uber there. Although the COVID-19 pandemic caused the Indian competition authority to pause its investigation of all three, the Confederation of All India Traders, a leading advocate for small traders and businesses in India, is urging the commission to restart its antitrust probe. (PYMNTS)


    WHAT WE’VE BEEN UP TO:

  • Open Markets’ new initiative, the Center for Journalism and Liberty, was mentioned in CNN’s newsletter Reliable Sources with Brian Stelter. Journalism scholar and consultant Dr. Jody Brannon will be the director of the center, and Dr. Nikki Usher is the center’s first fellow.

  • Sandeep Vaheesan wrote an article in The American Prospect on the FTC’s proposed settlement of a suit with three major rent-to-own companies concerning the firms’ illegal, predatory practices. The FTC is choosing not to punish the companies, despite their admission of an illegal collusion to allocate markets around the country.

  • Daniel Hanley wrote a piece for ProMarket on the monopolization of cloud computing by Amazon Web Services (AWS).Internet-based services made suddenly vital by the COVID-19 crisis, such as Zoom, rely heavily on cloud computing, a market that AWS dominates with a 48% market share.

  • Barry Lynn spoke with Le Monde about how online services such as Amazon seem more essential during the pandemic, which provides them an opportunity to repair their tarnished image. “The pandemic is going to change the image of the big platforms for the better but also for the worse. … [Amazon] is the company that’s hiring in the middle of a crisis and allowing people to get products – but it’s also the one whose employees are accusing it of putting them in danger,” Lynn said.

  • Barry Lynn spoke with El Confidencial about the consequences of market consolidation and concentrated supply chains in the wake of the COVID-19 pandemic. The article focuses on the unlearned lessons that Lynn revealed in his pioneering 2005 book End of the Line and in his 2010 book Cornered. The pieces quotes Lynn discussing a 1999 earthquake in Taiwan, which caused global disruption in the distribution of electronic microchips because of a concentrated supply chain.

  • Philip Longman spoke to Slate about the potential for increased tensions among millennials and baby boomers after the COVID-19 pandemic subsides. Longman stated the pandemic will “pit young and old against each other.” Longman also pointed out that “there’s an almost literal conflict of generations when there’s an 85-year-old on a ventilator and meanwhile there’s an automobile accident outside and two millennials are wheeled in and the capacity isn’t there to deal with them.”

  • Sally Hubbard spoke to Recode about how tech giants are benefiting from the COVID-19 pandemic and why they will continue to consolidate power after the crisis. “As one crisis comes and destroys so many people’s livelihoods, they’re going to say, ‘Wait, why were these the only companies that were strong enough to weather this?’” Hubbard said.

  • Sandeep Vaheesan spoke to Salon about Federal Trade Commission efforts to stop price gouging during the COVID-19 pandemic. “I'm sure the FTC will be pleading helplessness in the coming weeks and months when they are asked to go after price gouging,” said Veheesan.

  • Daniel Hanley spoke with Earther about how the rapidly increasing amount of e-waste could be reduced by enhancing consumers’ right to repair the products they own and by federal enforcement of the nation’s antitrust laws. “[The]problem with how much of the waste that we’re generating is entirely unnecessary, or even more nefariously, is purposely created because of these restrictions. It doesn’t have to be this way,” said Hanley.


VITAL STAT: $63 BILLION

The value of the proposed merger between pharmaceutical giants AbbVie and Allergan. The potential deal, which was announced in June 2019, would create the world’s fourth largest pharmaceutical company. The two pharma behemoths signed a consent decree with the FTC on March 17 to sell off three drugs, in order to win FTC approval of the deal. Abbvie says it expects to close the deal in May.


WHAT WE’RE READING:

Open Markets Employment Opportunities

You can find the full job listings here.

 
NewslettersOpen Markets2020, April 2020