The Corner Newsletter: August 11, 2022
Welcome to The Corner. In this issue, we take a look at how the Department of Transportation could exercise its authority to reign in the airlines as travelers suffer unprecedented travel delays and cancellations this summer.
Buttigieg Should Use DOT Power to Clip Airlines’ Wings Amid Summer of Snafus
Garphil Julien
Last week a group of Democratic lawmakers introduced a bill titled the Cash Refunds for Flight Cancellations Act, which would require airlines to offer customers affected by long flight delays and cancellations full refunds within 30 days. Given that the pace of delays and flight cancellations this year is running more than double that of 2021, and is on pace to surpass 2001 as the worst year ever in air travel snarls, it’s easy to understand the impetus behind the bill. What’s harder to grasp is why Congress is being forced to act at all, given that the Department of Transportation already has ample authority to effectively regulate the industry.
The DOT, which is run by Pete Buttigieg, the former mayor of South Bend, Indiana, has not been entirely silent on the problem. The Department has proposed a rule that would better define unfair practices, giving customers the right to a cash refund when an airline engages in these practices. The DOT has also proposed that any airline that has received a government bailout be required to give cash refunds. Another rule would require that any credits issued to customers for canceled flights have no expiration dates.
But many lawmakers have signaled that these measures don’t go far enough. Senators Elizabeth Warren and Bernie Sanders have called for fining the industry, with Sanders advocating for fines of up to $55,000 per passenger. New York Attorney General Letitia James last week called for investigations and fines for airlines, saying, “Airlines knowingly advertising and booking flights they do not have adequate staff to operate are flying in the face of the law.”
Thus far this year, the tactic appears to have been very lucrative for most of the airlines. United, Delta, American, and Southwest have all posted record earnings.
One factor that makes the actions appear especially galling is that these same airlines received some $50 billion in taxpayer bailouts as part of the pandemic relief package. Another is that these same corporations devoted most of their profits over the last decade in stock buybacks.
The Department of Transportation already enjoys the power to punish airlines for such unfair and deceptive practices. Under Section 411 of the Federal Aviation Act, the secretary of transportation can “investigate and decide whether an air carrier … is engaged in an unfair or deceptive practice or an unfair method of competition in air transportation or the sale of air transportation.” This means Buttigieg would be well within his authority to fine airlines for overbooking flights.
As John Paul Rollert, a professor of Behavioral Science at the University of Chicago’s Booth School of Business, points out, there’s little excuse for not using that power. “Most people don’t relish flying,” he says. “It’s stressful and it can create tremendous difficulties for some people. If airlines are doing this purposefully, there’s something morally problematic about that.”
Another potential line of action for the DOT is to address the common ownership structures that tie many of these airline corporations together. The same institutional investors hold significant shares of United, Delta, JetBlue, American, and Southwest. According to a 2018 paper by economists José Azar, Martin Schmalz, and Isabel Tecu, this ownership structure reduces the incentives to compete and leads to increased costs for consumers.
Section 411 of the Federal Aviation Act also empowers the DOT to limit common ownership in the industry. The Department could, for instance, adopt a rule which would prohibit institutional investors and individual shareholders in a concentrated market such as the airline industry from holding more than a 1% total share of the market. The Department could also demand assurances from investors that they will not participate in shaping corporate decisions.
Open Markets Helps Launch Canadian Antimonopoly Project
Open Markets Executive Director Barry Lynn, along with Stacy Mitchell of the Institute for Local Self Reliance, this week keynoted the launch of the Canadian Antimonopoly Project. CAMP is the first antimonopoly organization in Canada in decades, and is designed to serve both as a think tank and grassroots organizer. CAMP’s mission is to make “Canada’s economy more fair, free, and democratic.”
CAMP was founded by Keldon Bestor, a former special advisor at Canada’s Competition Bureau; Robin Shaban, a senior economist at Vivic Research and a research associate at the Canadian Centre for Policy Alternatives; and Andrew Cameron, vice president of Northumberland Properties and host of the podcast Monopolies Killed My Hometown. In 2018, Keldon worked as an intern with Open Markets.
🔊 ANTI-MONOPOLY RISING:
The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule this week stating digital marketing providers are subject to federal consumer financial protection laws. The rule clarifies that digital marketers involved in content strategy, identification of potential customers, or ad placement that affects consumer behavior are considered service providers and as such, can be held liable by the CFPB for violating consumer financial protections. (CFPB)
The European Commission last week launched an investigation into Google’s app store to examine its billing terms and developer fees. Developer fees are as high as 30 percent and many developers are not able to use rival billing systems to collect fees from customers. Google stated last month that it would address these two issues by reducing developer fees and allowing for rival payment systems, but the European Commission feels these recent actions may not be enough. (Politico)
Two major antitrust trials led by the Department of Justice began last week. The first involves Penguin Random House’s acquisition of Simon & Schuster and the second aims to stop UnitedHealth subsidiary Optum from buying Change Healthcare. As the first major antitrust case led by the Biden administration, the Penguin Random House case focuses on harm against authors rather than consumers. The Optum case argues that UnitedHealth would gain sensitive data from rival health insurers to create a monopoly. (Axios)
The Federal Trade Commission launched its first known investigation into crypto markets this week, probing the operators of the BitMart cryptocurrency exchange for unfair and deceptive business practices. The FTC sent civil subpoenas to the exchange in May, seeking information on their customer service practices and assurances of data protections. The move follows a cybersecurity breach at the exchange in which hackers were able to steal $150 million of cryptocurrencies from user accounts. (Bloomberg)
📝 WHAT WE'VE BEEN UP TO:
Garphil Julien published an article in the Washington Monthly discussing how the new CHIPS and Science Act is a good first step toward bolstering research and production of semiconductors in the U.S., but more must be done to diversify manufacturing and supply chains in other sectors. Julien draws from his recent report on the bottleneck in supply chains. Julien writes, “This dangerous concentration of production doesn’t just exist in the chip sector; it’s also in every other industry the Biden administration has identified as needing a resilient supply chain.”
Garphil Julien discussed the passage of the CHIPS Act on the public affairs podcast Attitude with Arnie Arnesen, hosted by a former member of the New Hampshire House of Representatives. The podcast is played in Concord, NH, and is also picked up by the Pacifica Network and distributed throughout the U.S.
The New York Times quoted Barry Lynn on the proposed merger between Penguin Random House and Simon & Schuster, calling the argument that publishers need to consolidate in order to compete with Amazon flawed. “Their argument is in order to protect the market from monopolization by Amazon, we’re going to monopolize the market,” said Lynn.
S&P Global quoted Karina Montoya on the increased scrutiny of mergers and acquisitions in Big Tech by the FTC and the DOJ. "Companies in general are paying more attention to the approach that the FTC and the [Department of Justice] are bringing to the consequences of their mergers and acquisitions and strategies in the market," said Montoya.
Civil Eats quoted Barry Lynn on the Department of Justice settlement that will lead to less exploitation in the meatpacking industry and improved conditions for poultry workers. “Today’s settlement between the DOJ and Cargill begins to improve the wellbeing of chicken growers and packing house workers in a number of important ways,” Lynn said.
Claire Kelloway was mentioned in The Beet for her calling out monopolies as the reason behind recent increases in food prices: “Tyson Foods claims the price spikes are due to higher demand for labor, fuel costs, and animal feed costs. Experts including Claire Kelloway of Open Markets Institute note that price hikes are linked to monopoly power as well.”
The Missouri Independent cited Open Markets for its claim that the Trump Administration weakened farmer protections under the longstanding the Packers and Stockyards Act by eliminating “several critical farmer protections from the previous rule and introduc[ing] new language that could codify abusive industry practices.”
MoneyWeek highlights Open Markets’ call for stricter competition regulation, particularly when it comes to Amazon’s recent acquisition of One Medical and Big Tech’s rapid encroachment into health care. Open Markets says, “The deal will expand Amazon’s ability to collect the most intimate and personal information about individuals, in order to track, target, manipulate and exploit people in ever more intrusive ways.”
Open Markets’ opposition to phosphate fertilizer company Mosaic’s acquisition of a competitor was cited in The Intercept. Open Markets objected to the increased consolidation in a letter to the USDA earlier this summer.
📈 VITAL STAT:
$1.65 billion
The amount Amazon paid last week when it bought iRobot Corp., which makes the Roomba vacuum, hot on the heels of its $3.5 billion takeover of One Medical.
📚 WHAT WE'RE READING:
“Meet the Lobbyist Next Door.” (Benjamin Wofford): The author documents how the influencer culture ingrained in today's marketing is reshaping the Internet with a flush of untraceable money where anyone from union organizers to college students, could be getting paid for their "earnest" opinion.
Open Markets Employment Opportunities
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