Welcome to The Corner. In this issue, we explore how private equity titans have set their sights on the care economy, deploying classic rollup strategies to limit competition and raise prices. We also launch two new papers on the Robinson-Patman Act (RPA) making the case for the U.S. government to revive enforcement of the RPA in order to help build a fairer, more open, and more decentralized economy.

Antitrust Regulators Take On Private Equity Rollups in the Care Economy

Audrey Stienon

This past September, emergency pandemic funding for childcare was winding down in Wisconsin, threatening to bankrupt more than 2,000 childcare providers in the state, when owners of these small businesses started receiving the same letter."Have you ever considered how you might transition your business to a new owner?" it began. With the industry in crisis and providers desperate to keep their doors open, private equity had come knocking.

Childcare is the latest industry to be targeted by a strategy that has drastically transformed many other sectors of America’s highly fragmented care economy. For over a decade, private equity (PE) firms have been buying up care providers, from nursing homes and hospice care to eye doctors and dentists, and rolling them up into larger chains. PE’s growing use of consolidation in the care economy is forcing antitrust regulators to shift how they evaluate this increasingly popular merger strategy.

Private equity firms like KKR or Blackstone make as much money as they can by pooling their wealthy clients’ money into funds, multiplying its value with debt, buying control over a portfolio of companies, and then driving down coststhrough layoffs or salary cuts. PE firms own companies for an average three to five years—during which they control management and have rights to all operating profits. Then they aim to sell the company and return realized earnings to investors.

In the past, PE typically targeted industries like retail with local or regional brands that have steady income and property assets to sell. Today, however, PE increasingly invests in industries like healthcare that are highly fragmented and where they can easily concentrate real power over both suppliers and customers. The share of PE investments that are add-on deals—where acquired businesses are merged into existing portfolio companies—grew from 45% to 62% between 2013 and 2022.

Fragmented healthcare markets offer easy opportunities for PE to quickly profit from merging multiple practices, centralizing administrative tasks, and, in theory, freeing care providers to spend more time with patients. But even benign rollups can be gateways to using increased market power for more nefarious purposes—such as monopolizing local markets, driving up prices, pushing down wages, or cutting care access to less profitable communities.

These tactics have proliferated in the absence of antitrust enforcement against rollups, whose acquisition deals are generally so small that they go unreported to antitrust regulators. But this era of impunity may be ending.

In September, the FTC filed an antitrust suit against PE firm Welsh, Carson, Anderson & Stowe, along with their portfolio company, U.S. Anesthesia Partners (USAP). The FTC charges that the defendants intentionally reduced competition and raised prices in the Texas anesthesiology market by buying up most large anesthesia practice in the state, and by striking deals with competitors to drive up prices or keep them out of markets under USAP control.

“They made a really good choice in looking at the anesthesiologists from Texas,” argues Eileen Appelbaum, codirector of the Center for Economic and Policy Research. “There is such a clear case of their consolidating and dominating a region so that no matter who you go to, you are almost certain to be going to one of their anesthesiologists, and then watch the prices rise.”

The case could set a precedent for how to regulate these tactics in the future, especially as the FTC is not only targeting the corporate entity overseeing the rollup, but is also seeking to hold their PE owner to account.

The FTC has also proposed reforms to pre-merger notification rules under the Hart-Scott-Rodino Act, which could help prevent similar efforts in the future. If adopted, these will require the companies proposing a merger to submit information about their corporate structure and ownership; their relationships with competitors, suppliers, and customers; and disclosures of any previous acquisitions they or their owners have completed in the same industry over the past decade.

Although small mergers will continue to evade the FTC's immediate notice, these disclosures would strengthen the agency’s ability to identify where anticompetitive acquisitions are being used as an investment strategy, as well as cast light on the breadth of PE activities across industries.

These rules are buttressed by provisions in proposed changes to the merger guidelines of the FTC and Department of Justice, which will make it easier for antitrust enforcers to look at a company's past acquisitions in an industry to determine whether their next acquisition, even if small and unassuming, should be blocked.

In enacting new rules, and attempting to set new enforcement precedents that target PE, competition law enforcers are ensuring that the anticompetitive tactics that PE firms have pioneered do not become the new market standard. For industries like childcare that are just now seeing PE attention turn their way, this renewed regulatory attention comes none too soon.

Open Markets Institute Releases Two Papers Calling for Revival of Robinson-Patman Act

Open Markets Institute released two new papers making the case for the U.S. government to revive enforcement of the Robinson-Patman Act (RPA) to help build a fairer, more open, more decentralized, and more democratic economy. Onepaper “The Robinson-Patman Act as a Fair Competition Measure,” coauthored by legal director Sandeep Vaheesan, senior legal analyst Daniel Hanley, and chief economist Brian Callaci, describes how Congress passed the RPA to channel competition away from the use of buyer and financial power and toward economies of scale, fair prices and fair wages, and investment in new capacity. The other paper “Controlling Buyer and Seller Power: Reviving Enforcement of the Robinson-Patman Act,” to be published in the Hofstra Law Review, elucidates how Robinson-Patman’s core focus on outlawing discrimination in the provision of services strengthens democracy and individual liberty.

Congress passed Robinson-Patman, which was widely and successfully enforced from the 1930s into the 1980s, toprevent large corporate entities from using their sheer size to extort or coerce suppliers into granting them discriminatory discounts and other special favors. Both papers from Open Markets offer detailed accounts of how both historically dominant retailers and present-day retail behemoths like Walmart and Amazon have used their size and power to extort smaller suppliers to offer them lower prices in violation of the RPA. The papers also detail how powerful manufacturers and sellers can use the same tactics against independent retailers and other smaller enterprises.

CJL Director Courtney Radsch Testifies Before California Senate and Canadian Parliament

Center for Journalism & Liberty director Dr. Courtney Radsch this week testified before both the California senate judiciary committee and the Canadian Parliament’s standing committee on Canadian Heritage. In both, she described howonline gatekeeper corporations use their outsized power to censor news, distort public information, and subvert government oversight. In California, she said “the crisis facing journalism is not a problem of the news industry’s own making,” but rather of “legal regulatory frameworks that privilege tech platforms over the press and give the former unfettered power to set the rules.” Before the Canadian parliament committee, Dr. Radsch explained how “Big Tech and their leaders have deployed their vast resources and charitable foundations to evade regulation around the world, influence research and journalistic coverage, intimidate critics and undermine legal regulatory oversight.”

Open Markets Calls on Government to Investigate Harvard for Firing
Disinformation Scholar

Open Markets Institute released a statement calling on the U.S. government to investigate a move by Harvard University’s Kennedy School of Government to shut down a scholar’s tech policy research following a donation from Facebook. “Weat the Open Markets Institute support Dr. Joan Donovan’s demand that the U.S. Education Department thoroughly investigate how Meta’s substantial financial contributions to Harvard have affected the university’s academic freedom and research integrity,” the statement read. “As we know from our own experience, the Big Tech firms can use their vast resources and charitable contributions to improperly influence research institutions, intimidate critics, and undermine oversight.”

📝 WHAT WE'VE BEEN UP TO:

Center for Journalism & Liberty director Dr. Courtney Radsch published an article in The Guardian on last month’s chaosat the AI developer OpenAI — where CEO Sam Altman was fired and then rehired over the course of a long weekend. The drama, Radsch wrote, distracts from the real issue at stake, which is Big Tech’s ability to control the emerging AI space. “At the root of these theatrics are questions of power,” Radsch wrote, “power over the resources needed to develop advanced AI systems and the power to decide how to balance current harms against future risks and shape the future of this technology.”
The New York Times quoted Open Markets Institute executive director Barry Lynn saying that Big Tech firms should not be allowed to monopolize cloud computing. “This is foundational infrastructure for our entire online economy,” he said.“The fact that there are only three corporations that do this gives them all sorts of power, including the power to exclude competitors or set pricing in a discriminatory way, and it also leads to them not paying enough attention to stability and resiliency.”
Open Markets senior Reporter Karina Montoya published an article for Project Syndicate , describing how Google used its muscle to convince the court to limit transparency and public access to information during its landmark trial versus the DOJ. “Google’s stated mission is to make the world’s information universally accessible,” Montoya writes. “But Google’s actions during the trial, in which it was accused of illegally maintaining a search and advertising monopoly, stand in sharp contrast to that credo.”
OMI legal director Sandeep Vaheesan published an article in Jacobin on how a disinformation campaign mounted by the energy lobby led Maine’s voters to reject a referendum for publicly owned energy. “For supporters of public power in Maine and across the nation, the outcome on November 7 was a setback,” Vaheesan writes. “But history should give them hope. Pine Tree Power should not be dismissed as a lost cause but embraced as a cause not yet won.”
Open Markets’ food systems program manager Claire Kelloway published an article in ProMarket debunking the argument by Kroger and Albertson’s that their proposed merger will allow them to compete against retail giants like Walmart and Amazon and calling on the Federal Trade Commission to block the deal. “Rather than promise more competitive prices for consumers, this merger will only lead to lower prices for farmers and grocery workers, more grocery consolidation, and diminished choice and food access for consumers,” Kelloway writes. “Antitrust enforcers should block the proposed merger and use existing laws and authorities, namely the Robinson-Patman Act, to help grocers compete with Walmart and Amazon instead.”
MSNBC quoted OMI chief economist Brian Callaci criticizing the rollup of sandwich shops across the country by private equity firm Roark Capital, which recently purchased the Subway chain. Callaci said that if multiple separate brands are“all owned by the same private equity firm, it’s not really any choice at all. It’s an illusion of choice.”
Open Markets Institute’s Europe director Max von Thun was quoted in Lebigdata and Digiday on how OpenAI’s recent upheaval shows that individual companies are “too fickle and unstable to regulate themselves” and that AI model providers should be held to standards like that proposed by the EU AI Act.
Food systems program manager Claire Kelloway was quoted by 12news commenting on the recent surge in egg prices. “Ifcompanies were just charging what they had to in order to afford their higher costs then you wouldn’t see such record-high profit margin increases,” Kelloway said. “I think consumers have a right to question that.”
Politico quoted Open Markets senior fellow Johnny Ryan saying that many tech executives working in Dublin had become disillusioned with Silicon Valley and were now looking to use their expertise to hold these firms to account. "If a person with the right knowledge is in charge of enforcement, then that could be a very positive thing," he said.
The American Prospect cited a recent report by Johnny Ryan on internet surveillance and the real-time bidding that occurs when anyone logs on to a website. “Almost every time a person loads new content on a website or app, instantaneous‘Real-Time Bidding’ (RTB) auctions determine what ads appear in front of them,” TAP wrote. Ryan’s report was also referenced in PIA Blog

🔊 ANTI-MONOPOLY RISING:

A group of nonprofit hospitals and physicians in California filed a federal antitrust case against Optum—a subsidiary of healthcare giant UnitedHealth—accusing it of pushing them to agree to not compete over hiring for primary care physicians. (STAT)
Contractor suppliers in New York filed a class-action lawsuit against a suite of European building materials corporations—including France’s Saint-Gobain, Germany’s Master Builders Solutions, and Switzerland’s Sika—for colluding to fix prices on construction chemicals. The case, which will be heard in Philadelphia, follows a European Commission inspection of the construction chemicals sector earlier this year. (Reuters)
The European Commission issued a formal statement of objections to Amazon over its moves to acquire automatic vacuum producer iRobot. The statement opens the door for authorities to propose market remedies to address competition concerns or block the transaction altogether. (TechCrunch)
The UK’s Competition and Markets Authority won an appeal against Apple in its investigation of the corporation’s mobile browsing and cloud gaming services. The victory protects the regulator’s investigatory powers, which had been substantially narrowed in the ruling that was overturned. (Bloomberg)

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📈 VITAL STAT:

$17.7 million

The amount awarded to a group of food companies including Kellogg, Kraft, and General Mills after winning a caseagainst egg producers and industry trade groups who were accused of a price-fixing conspiracy that inflated egg prices and cost food producers millions of dollars. The damages could be tripled under U.S. antitrust law to $53 million. (CDR News)

📚 WHAT WE'RE READING:

The Bill Gates Problem — Investigative journalist Tim Schwab dismantles the myth of the benevolent monopolist in his thorough and damning account of Bill Gates’s philanthropic ventures. Schwab leans on the sources and knowledge he developed chronicling Gates’s moves over the years for The Nation to reveal how Gates has used the fortune he gained at Microsoft to purchase undemocratic influence over public policy around the globe under the guise of charity.

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