The Corner Newsletter: July 01, 2022
Welcome to The Corner. In this issue, we discuss a major supply chain chokepoint that may pose an obstacle to increasing supply in the oil industry, Regeneron Pharmaceutical’s lawsuit against Novartis Pharma alleging monopolization and restraint of trade, and supply chain problems in the fertilizer industry.
Oil Pipe Chokepoint Hinders Efforts to Boost U.S. Production
Garphil Julien
President Biden early last month called on U.S. oil companies to produce more and chided them for restricting supply and taking advantage of high prices to increase profits and engage in stock buybacks. Exxon and Chevron have planned $10 billion in stock buybacks so far this year, Shell has announced plans for $8.5 billion in buybacks, and BP is close behind, planning a buyback of $4.15 billion.
Attacking the oil majors may be smart politics. But if the administration really wants to increase oil production, it should turn its efforts to a very different monopoly problem. This is the shortage of oil country tubular goods (OCTG), which are steel pipes, tubes, and casings needed for oil and gas drills to function. Lack of production capacity is hammering smaller oil producers, who represent a substantial portion of U.S. supply, and who often take the lead in boosting production.
Prices for OCTG have increased by 100% in the past year and have severely limited the ability of independent producers to expand capacity. According to a Dallas Federal Reserve survey released in March, “inflation in oil country tubular goods and shortages of key equipment and materials, will limit growth in our business and U.S. oil production.” Nick Powell, chairman of the National Stripper Well Association and a small producer, puts the problem in simpler terms: “Prices are extremely high.”
Over the past two decades major OCTG producers such as Tenaris, National Oilwell Varco, TMK, and U.S. Steel have both consolidated the industry and shuttered production capacity. U.S. steel, for instance, has shut down 50% of its mills since 2014. A U.S. Department of Commerce report in 2018 pointed out that subsidized imports from abroad have resulted in U.S. producers being unable to compete. Since then, the U.S. International Trade Commission, at the behest of numerous domestic producers citing unfair competition, has imposed antidumping and countervailing duties on imports from abroad, targeting countries including Mexico, Argentina, Russia, and South Korea.
COVID-19 further complicated the problem, as producers shut down mills producing OCTG because of low demand during the early days of the pandemic. The war between Russia and Ukraine has weakened attempts to ramp up production, as both countries are major exporters of steel.
There are steps the administration can take to bring down the price of OCTG steel products while also protecting domestic manufacturers. One approach would be similar to the administration’s recent move with solar panels, which involved temporarily waiving tariffs while helping domestic producers boost production. Such a step would require placing conditions on any OCTG manufacturer receiving funds, including restricting stock buybacks or plant closures.
Open Markets Files Amicus Brief on How to Define Markets for Antitrust Enforcement
The Open Markets Institute filed an amicus brief in Regeneron v. Novartis. This case concerns alleged monopolization and restraint of trade by Novartis in the market for a medication used to treat macular degeneration and other serious eye conditions. It raises a critical issue in many antitrust matters—how to define the product market in which businesses compete. Basic antitrust concepts such as monopoly power are meaningful only in relation to a particular product and geographic market. “If courts fail to properly define what constitutes a product market, monopolists are much more likely to escape accountability for their unfair competitive practices,” Sandeep Vaheesan, legal director at Open Markets, said in filing the brief. “In this case, the district court ignored both the law and the factual allegations in Regeneron’s complaint.”
Open Markets Files Comment on Competition and Supply Chain Issues in the Fertilizer Industry
The Open Markets Institute submitted a comment to the U.S. Department of Agriculture that examines the high levels of concentration and supply chain challenges in the domestic and global fertilizer industry. The comment details how consolidation and coordinated efforts to restrict supply and increase prices by fertilizer monopolists over the past decades have contributed to global shortages and weakened supply chain resiliency. The comment calls on the USDA, the Federal Trade Commission, and the Justice Department to take numerous actions to address concentration and anticompetitive practices in the industry. This includes preventing further mergers, rolling back existing mergers, ending antitrust exemptions for domestic and regional producer cartels, cracking down on exclusive dealing agreements, removing trade barriers while promoting domestic competition, and promoting more sustainable farming practices.
🔊 ANTI-MONOPOLY RISING:
The Department of Justice filed a lawsuit this week blocking the acquisition of EverWatch Corporation by consulting firm Booz Allen Hamilton. EverWatch is a subsidiary of EC Defense Holdings LLC. The acquisition, according to the DOJ, would reduce the options that agencies such as the National Security Agency have in the operational modeling and simulation services and would leave the agency subject to a monopoly bidder. Prior to the proposed acquisition, both companies bid for contracts for the NSA. (Department of Justice)
The Federal Trade Commission sued Walmart for improperly overseeing the money transfer services at its stores, enabling scam artists to steal hundreds of millions of dollars from customers. According to the FTC, Walmart did not alert customers, failed to adequately train employees, and followed improper procedures. (NPR)
Google agreed to drop its appeal on an antitrust fine of €500 million from France’s competition regulators. France in 2021 imposed a fine on Google for attempting to evade the requirements of a 2019 law that would require the corporation to negotiate payments with local news publishers for displaying publishers’ content. According to French authorities, when attempting to negotiate, Google withheld key information and sought to press publishers into paying for new products. (TechCrunch)
Uber and Lyft were served a class action lawsuit in Superior Court in San Francisco by a group of drivers last week that alleges the companies are engaging in anticompetitive practices. The lawsuit claims that Uber and Lyft have limited drivers’ options to accept rides without penalty and have set the prices customers pay. According to the plaintiffs, these practices are contrary to both companies’ assurances of driver independence and serve to shield the company from giving drivers benefits and protections of employment status. (New York Times)
The European Commission is expected to open an investigation into Broadcom’s $69 billion acquisition of cloud software company VMware. The investigation is likely to be a phase 2 investigation which is more detailed and could take over a year to finish. The EU is concerned that VMWare’s customers may be required to purchase services from Broadcom after the deal closes. In Broadcom’s last two acquisitions, of CA Technologies and Symantec’s enterprise security business, Broadcom raised prices after the deal closed. (Financial Times)
President Biden in June signed the Ocean Shipping Reform Act, the first major rewriting of ocean shipping rules since 1998. The bill, which comes after a period of major upheaval in ocean shipping of containers, transforms the Federal Maritime Commission from an agency that investigates complaints from shippers into one that can proactively regulate ocean carriers. The bill received strong support from both parties. (AG Week)
📝 WHAT WE'VE BEEN UP TO:
Policy Director Phil Longman wrote the cover story for the Washington Monthly diagnosing the inflation woes plaguing the country and explaining why unchecked corporate power is to blame. The story lays out how deregulation and negligence of antitrust enforcement has given large corporations enormous pricing power. Titled “It’s the Monopoly, Stupid: Unchecked Corporate Power is Fueling Inflation,” you can read the article here.
Journalist Dan Froomkin, working on assignment from the Open Markets Institute’s Center for Journalism and Liberty, published a 5,000-word expose of Jeff Bezos's control of the digital publishing technology that supports large newspapers in the summer magazine issue of the Washington Monthly. Froomkin described how Bezos's Arc XP digs an even deeper hole for a news industry already reeling from Google and Facebook’s monopolization of online advertising. The story reveals how the Amazon founder could gain total control over the backbone of most large newspapers, further consolidating his influence over American media. Read the article, which is titled “Jeff Bezos’ Next Monopoly: The Press,” here.
Sally Hubbard, the former director of enforcement policy at Open Markets, appeared in a new report on “John Oliver: Last Week Tonight.” The report, called Tech Monopolies, supported Congressional efforts to reduce the power of big tech corporations by restricting their ability to preference products and services they control. Hubbard worked for Open Markets at the time her clip was filmed.
Executive Director Barry Lynn was a featured speaker, along with Rep. David Cicilline, in an Our Revolution online program called “Special Call to Bust Big Tech.” Evan Greer, executive director of Fight for the Future, also took part. The broadcast was covered by Bloomberg and was viewed more than 35,000 times within the first 24 hours.
Agri-Pulse cited Open Markets’ USDA public comment in an article exploring consolidation in the seed industry and how it plays into higher prices. As the comment details, market concentration can result in farmers paying more for seeds and seed treatments because concentrated companies offer fewer products with more bundled traits and treatments.
Open Markets and Farm Action’s Report Card event was referenced by the Fence Post and Tri-State Livestock News in their write-ups of the conference.
📈 VITAL STAT:
2 Per Week
The rate at which newspapers close in the United States, according to a new report from Northwestern University’s Medill School.
📚 WHAT WE'RE READING:
“The U.S. Needs Controls on Data Brokerage.” (Tech Policy Press, Justin Sherman): The author comments on newly introduced legislation to ban data brokers from selling sensitive health and location data, which entrenches the power of Big Tech in the surveillance advertising ecosystem.
“The Magazine Supply Chain Is in Chaos. Mother Jones Isn’t Immune.” (Mother Jones, Claudia Smuckler): The supply chain crisis also hits the $760 billion global print market. The author navigates through the chokepoints in paper manufacturing and transportation that make it increasingly harder to sustain quality journalism in print.
Nikki Usher’s Book:
News for the Rich, White, and Blue: How Place and Power Distort American Journalism
Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.
Open Markets Employment Opportunities
You can find the full job listings here.
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