No images? Click here 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.
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.
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.”
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:
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NIKKI USHER'S NEW 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. “We need to radically rethink the core functions of journalism, leverage expertise, and consider how to take the best of what the newspaper ethos of journalism can offer to places that have lost geographically specific news, “ says Usher, an associate professor at the University of Illinois-Champaign. “The news that powers democracy can be more inclusive.” Usher is also the author of Making News at The New York Times (2014) and Interactive Journalism: Hackers, Data, and Code (2016). News for the Rich, White, and Blue, published by Columbia University Press, is available as a hardback, paperback and e-book. You can order your copy here. 🔎 TIPS? COMMENTS? SUGGESTIONS? We would love to hear from you—just reply to this e-mail and drop us a line. Give us your feedback, alert us to competition policy news, or let us know your favorite story from this issue. |