Welcome to The Corner. In this issue we discuss the important lesson to be learned from AT&T’s failed acquisition of WarnerMedia: Mergers need more scrutiny.
The Lesson from AT&T’s Failed Acquisition of WarnerMedia: Increase Scrutiny of All Mergers
Telecommunications and media giant AT&T announced Monday that it intends to spin off its WarnerMedia division to Discovery. The deal, if approved by regulators, would unwind AT&T’s $85 billion acquisition in 2018 of the media giant then known as Time Warner.
One implication of AT&T unloading WarnerMedia so quickly is that the original merger apparently did not make much business sense, despite all the bold claims made for it on Wall Street at the time. But a deeper implication is that our regulatory process for reviewing mergers remains deeply broken.
The Department of Justice challenged the original merger in court, charging, along with many other observers, that it would lead to unprecedented and unacceptable levels of vertical integration. It was a watershed moment — the first litigated vertical merger case since 1974.
AT&T vigorously defended itself against the DOJ’s lawsuit, and ultimately prevailed, making a series of arguments and predictions that we can now see were false.
For example, AT&T claimed that, as a result of the merger, consumers would have increased access to content and that it would be “ irrational [[link removed]]” for the company to withhold content from reaching as many consumers as possible. Yet AT&T subsequently restricted [[link removed]] WarnerMedia’s content from streaming on Netflix.
Adding insult to injury, evidence shows [[link removed]] that AT&T hardly made investments in producing better streaming content. AT&T invested a paltry $2 billion into new shows and movies for its HBO Max streaming service — a pittance compared to Netflix’s $16 billion investment in new films and shows.
AT&T also staunchly asserted that the merger would " enabl[e] [[link removed]] AT&T and Time Warner to reduce consumer prices. [[link removed]]" The claim proved to be a farce when the combined company subsequently raised consumer prices [[link removed]] for its DirecTV Now service by $5 a month.
The merger has also proven to be a bad deal for workers. Over the past two years, the corporation went through two rounds of layoffs [[link removed]], one of which included cutting nearly 1,000 jobs. AT&T has also shed 45,000 jobs [[link removed]] across its other divisions since the acquisition.
Now, as AT&T tries to make the case for why selling WarnerMedia to Discovery won’t result in an equally problematic merger, it is making a lot of the same arguments. For example, AT&T now asserts that the new combine will produce $3 billion [[link removed]] in synergies (a coded word for efficiencies) and increase competition [[link removed]] due to planned corporate investments [[link removed]] into creating “ more [[link removed]] great content [[link removed]]” for consumers.
Chances are those predictions will prove false as well. A plethora of evidence shows that mergers generally do not produce the efficiencies that are claimed by the parties. A comprehensive meta-analysis [[link removed]] by Professor John Kwoka found that mergers typically result in higher prices for consumers. Evidence also shows that mergers tend to depress worker wages [[link removed]]. As New York University business professor Melissa Schilling [[link removed]] has stated, most mergers “do not create value for anyone, except perhaps the investment bankers that negotiated the deal.”
Nonetheless, most mergers go unchallenged [[link removed]] by federal agencies, especially vertical mergers. Too many judges and regulators remain under the thrall of the idea that there is no reason to keep even a dominant corporation from buying up different levels of industry since, according to the theory [[link removed]], any integrated company that abuses its power will inevitably be displaced by a less predatory competitor.
But in the real world, that’s not how vertically integrated corporations often behave. For example, even though AT&T assured the Senate Antitrust Subcommittee that it would be “ irrational [[link removed]]” for it not to place its content on as many other platforms as possible, in fact it limited access [[link removed]] to its content to people with AT&T accounts.
A critical lesson from AT&T’s acquisition of WarnerMedia is that federal regulators need to return to much more rigorous scrutiny on mergers, including vertical mergers. In 2020, DOJ and the Federal Trade Commission adopted new Vertical Merger Guidelines [[link removed]] , [[link removed]] [[link removed]]but they remain woefully vague and deferential.
🔊 ANTI-MONOPOLY RISING:
Last week, the Merger Filing Fee Modernization Act unanimously passed in the Senate Judiciary Committee. The bill, introduced by Sens. Amy Klobuchar and Chuck Grassley, would raise the fee that corporations have to pay from $280,000 to $2.25 million for deals worth $5 billion or more. The measure would also lower the fee for smaller mergers under $161.5 million from $45,000 to $30,000. The bill would also increase the budget of enforcement agencies, giving the FTC a budget of $418 million and the DOJ’s antitrust division $252 million. ( Reuters [[link removed]])
A group of attorneys general from 45 states and territories wrote to Congress last week asking for greater funding for their antitrust probes. The letter noted the need for greater antitrust enforcement in numerous industries, especially with regard to actions taken against Big Tech. ( Reuters [[link removed]])
Last week, FTC Acting Chairwoman Rebecca Kelly Slaughter and Commissioner Rohit Chopra announced a continuation of an investigation into 7-Eleven’s $21 billion purchase of 3900 Speedway retail stores from Marathon Petroleum Corp. The acquisition would give 7-Eleven a dominant position in the convenience store market in major metropolitan areas. The acquisition was closed last week after 7-Eleven agreed with the FTC to sell 293 stores. The deal, however, will continue to be investigated with the potential to be unwound. ( Bloomberg [[link removed]])
Last week German antitrust regulators launched an investigation into Amazon for abuse of market dominance. The Federal Cartel Office (FCO), the Bundeskartellamt, under a new amendment to the German Competition Act, would give the agency greater power to regulate the practices of digital companies. The FCO could ban practices such as self-preferencing, tying, bundling, and data processing relevant for competition purposes. ( TechCrunch [[link removed]])
Three House Democrats this week called for the FTC to investigate pharmaceutical corporation Abbvie for anticompetitive practices related to its pricing of rheumatoid arthritis drug Humira. The investigation focuses on pay-for-delay agreements Abbvie made in order to prevent lower-cost biosimilar drugs from entering the market to compete with Humira. ( The [[link removed]] Hill) [[link removed]]
📝 WHAT WE'VE BEEN UP TO:
A feature piece ran in The University of Connecticut’s news outlet, UConn Today [[link removed]], about Daniel Hanley and Jackie Filson for their monopoly-busting work at Open Markets: “The alums lead a growing anti-monopoly movement at the Open Markets Institute, a Washington-based nonprofit seeking to restore antitrust laws to ensure a fair and equitable distribution of opportunity, wealth, and power.”
Claire Kelloway was interviewed by The Working Landscapes Lab [[link removed]] in a podcast about agricultural consolidation. “Right now just a handful of very powerful, mostly investor-owned corporations make most of the decisions about how we produce food, how it's distributed, and what our food system looks like.”
Open Markets’ report on Amazon’s worker surveillance was mentioned in The Washington Post [[link removed]] as evidence of the invasiveness of surveillance and punishment of workers. “A 2020 study by the Open Markets Institute found that Amazon relies on an ‘extensive worker surveillance infrastructure,’ including an AI-enabled camera in Prime vehicles, wristbands, thermal cameras, security cameras and intelligence analysts.”
Barry Lynn was mentioned in The Telegraph [[link removed]] speaking about Big Tech’s dominance and the relationship it has had with government officials. “Think tank Open Markets Institute’s executive chairman, Barry Lynn, rejects the theory that Obama felt he owed Schmidt’s data wizards anything. If anything, Google was pushing at an open door.”
Sally Hubbard was mentioned in Wired [[link removed]] for publicly stating that Apple has long had monopoly power in the App Store. “US law defines monopolies by their power to control prices and exclude competition. ‘So when Apple is unilaterally setting the 30 percent commission that is direct evidence of monopoly power, because that's the power to control prices.’”
Claire Kelloway’s Food & Power piece ran in The Washington Monthly [[link removed]]. It reports on why independent grocery stores are calling for enforcement of anti-monopoly laws like the Robinson-Patman Act to protect them from grocery goliaths such as Amazon and Walmart. “Discrepancy in buyer power has dramatically expanded with grocery consolidation. As recently as 1997, Americans bought 20 percent of all groceries from the top four retailers. By 2019, the top four retailers claimed 43 percent of all sales, with Walmart alone capturing 1 in every 4 dollars spent on groceries. Amazon’s online grocery sales also tripled during the pandemic, just as the e-commerce goliath expands its network of brick-and-mortar Amazon Fresh grocery stores.”
Open Markets was mentioned in JD Supra [[link removed]] and Mondaq [[link removed]] for petitioning the FTC to ban noncompetes and exclusionary contracts. “Already, the Open Markets Institute (in conjunction with other advocacy groups) has put two proposals before the agency. The first petitions the FTC to prohibit employers from requiring or enforcing non-compete clauses with regard to their workers, whether employees or independent contractors.”
Barry Lynn was quoted in CQ Researcher [[link removed]] speaking about Big Tech's gathering and use of personal customer data. “Barry Lynn, executive director of the Open Markets Institute, a Washington-based advocacy group that works to rein in corporate power, says Amazon's algorithms allow it to offer different prices to different customers, to its own advantage. ‘They know you don't really pay attention to pricing, so they might charge you $2.29 for a can of beans,’ he says, ‘Someone else who really shops around, maybe they'll charge less.’”
The Washington Monthly [[link removed]] ran Claire Kelloway’s Food & Power piece about how tech giants are trying to create a monopoly middleman on grocery deliveries. “[Tech giants and their investors] are willing to burn cash on cheap, unprofitable delivery to corner this market.”
We appreciate your readership. Please consider making a contribution to support the continued publication of this newsletter.
DONATE [[link removed]] 📈 VITAL STAT: $300
The monthly estimated amount [[link removed]] per house that monopolies in industries across the economy cost American households.
📚 WHAT WE'RE READING: “ Soaring Private Equity Investment in the Healthcare Sector: Consolidation Accelerated, Competition Undermind, and Patients At Risk [[link removed]]” (American Antitrust Institute, Laura Alexander, Dr. Richard Scheffler): The authors discuss the growth of the private equity industry and the threat it poses to the quality of health care in the United States. The authors also examine how the private equity sector increases corporate concentration and the prevalence of predatory and exclusionary practices in the health care industry.
Liberty From All Masters
The New American Autocracy vs. The Will of the People
St. Martin’s Press has published Open Markets Executive Director Barry Lynn’s new book, Liberty [[link removed]] f [[link removed]] rom All Masters [[link removed]].
Liberty is Lynn’s first book since 2010’s Cornered. In his new work, Lynn warns of the threat to liberty and democracy posed by Google, Amazon, and Facebook, because of their ability to manipulate the flows of information and business in America. 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. Lynn also offers a hopeful vision for how we can use anti-monopoly law to rebuild our society and our democracy from the ground up.
Liberty from All Masters has already made waves for its empowering call to restore democracy by resurrecting forgotten tools and institutions. “Very few thinkers in recent years have done more to shift debate in Washington than Barry Lynn. In Liberty from All Masters, he proves himself as a lyrical theorist and a bold interpreter of history. This book is an elegant summoning of a forgotten tradition that can help the nation usher in a new freedom,” says Franklin Foer, author of World Without Mind and national correspondent for The Atlantic.
You can order your copy of Lynn’s book here [[link removed]].
7 Ways Big Corporations Rule Your Life and How to Take Back Control
Simon & Schuster published Monopolies Suck [[link removed]] by Sally Hubbard on Oct. 27. The book is the first by Hubbard, who is Open Markets’ director of enforcement strategy. Hubbard examines how modern monopolies rob Americans of a healthy food supply, the ability to care for the sick, and a habitable planet, because monopolies use business practices that deplete rather than generate. Monopolists also threaten fair elections, our free press, our privacy, and, ultimately, the American Dream, Hubbard shows. In Monopolies Suck, Hubbard reminds readers that antitrust enforcers already have the tools to dismantle corporate power and that decisive action must be taken before monopolies undermine our economy and democracy for generations to come. In Monopolies Suck, Sally provides an important new view of America’s monopoly crisis and of the political and economic harms of concentrated private power. Order your copy here [[link removed]].
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Written and edited by: Phil Longman, LaRonda Peterson, Jackie Filson, Daniel A. Hanley, Garphil Julien, and Ezmeralda Makhamreh.