Top Ten Antitrust Targets

Columbia University professor Tim Wu is author of the new book The Curse of Bigness: Antitrust in the New Gilded Age, which calls for a more active approach to antitrust regulation (see also Richard Epstein’s review in The Wall Street Journal). Wu wants to see more “big cases” along the lines of previous lawsuits against Standard Oil, AT&T, and IBM. The last such case was against Microsoft, nearly two decades ago. Over at Medium, Wu lists his top ten targets in alphabetical order:

1. Amazon

Wu makes the monopsony argument about Amazon’s control of labor markets. In layman’s terms, that means Amazon is the dominant employer in some places, and can use that leverage to mistreat employees. The monopsony argument is also often used by proponents of a higher minimum wage.

Unfortunately for them and for Wu, the evidence for any company’s monopsony labor power is thin. Workers who dislike a company’s wages or working environment typically do not find it difficult to find other work. For context, the U.S. economy has a total job churn of more than 5 million workers per month. That’s a lot of hirings, firings, retirements, quittings, closings, and startups. People can, and often do, change jobs. Amazon has 542,000 employees, compared to roughly 7 million current job openings nationwide. That isn’t much of a monopsony.

Even smaller towns with a large Amazon facility have numerous employment options within a reasonable commute. Amazon’s in-house $15 per hour minimum wage also speaks to the strength of the monopsony argument, and of a potential antitrust case.

There is plenty to say about the billions of dollars in corporate welfare Amazon will be receiving for its planned Virginia and New York headquarters, but the remedy for those abuses is outside the purview of antitrust regulators.

2. AT&T/WarnerMedia

Wu asks if the case is worth revisiting, since the competing Dish Network is losing market share to AT&T/WarnerMedia’s DirecTV. Here, Wu gives an example of the relevant market fallacy. A satellite TV provider’s relevant market is broader than other satellite TV providers. It is also competing against cable TV providers—hence all those commercials urging customers to switch from satellite to cable or vice versa. Other relevant competition includes Internet service providers and Internet-based on-demand content providers such as Netflix, Hulu, and YouTube. Satellite TV providers are also directly competing against portable devices such as phones and tablets that deliver similar content with neither satellites nor TVs. So to answer Wu’s question, no, this merger is not worth revisiting.

3. Big Agriculture

U.S. farm policy is a mishmash of subsidies, quotas, trade protectionism, and rent-seeking. Many current policies have been in place since the 1930s, and it shows. Farm policy has also caused foreign policy tensions with allies such as Canada and the European Union. At the same time, subsidies to wealthy farmers and big agribusinesses can price developing country farmers out of the market. American farm policy helps poor people around the world stay that way. Reform is badly needed.

An antitrust suit would present yet another rent-seeking opportunity. A better solution would be to remove the policies that have been so thoroughly gamed in the first place.

At the same time, the food business has actually become more diverse and competitive despite government policies captured by big agribusinesses. For example, the average grocery now carries 40,000 more unique items than it did in the 1990s. Michael Ruhlman’s book Grocery: The Buying and Selling of Food in America shows how competitive and increasingly diverse Americans’ food choices are becoming over time, up and down the supply chain.

And it’s not just farmer’s markets and small co-ops driving the diversity movement. Grocery stores of all sizes, big and small food producers, and scientists and nutritionists are also participating in the process, both influencing and being influenced by changing consumer tastes. Not only does this development tie into the relevant market fallacy, but it shows that even the big companies are responding to the times. If they didn’t, they wouldn’t be big companies for very long—evidence of a lack of monopoly power.

4. Big Pharma

This is another industry where the competitive obstacles are largely government-imposed. Those policies are the relevant reform target. It can cost nearly a billion dollars and take nearly a decade to bring a new drug to market, which is a rather substantial barrier to entry for a startup firm. One way to lower this barrier is a policy of mutual recognition. If a drug is approved by another government we trust, such as the UK, EU, Japan, or Australia, for example—then it should have automatic or expedited approval in the U.S., and vice versa. Lowering this entry barrier would increase competition both domestically and internationally in a way that antitrust enforcement cannot.

As for abuses by people like Martin Shkreli, those were made possible by intellectual property laws in need of reform. Companies can only seek rents when government policy makes those rents available. Antitrust regulation is not the only, nor the appropriate, remedy.

5. Facebook

Wu argues that Facebook holds a dominant market position, especially after acquiring popular social media platforms such as Instagram and Whatsapp. No imminent threat is on the horizon. If Facebook isn’t a monopoly already, it’s well on its way.

The trouble is that Facebook’s userbase at this point has a lot of gray hairs. Young people are staying away in droves; few kids want to hang out within sight of their parents and teachers. That potentially puts a damper on Facebook’s viability. For those of us over 30, exit is easy if we don’t like Facebook’s product or its privacy policies. Gizmodo has a list of alternatives here, which alone should be enough to settle the monopoly question.

The key antitrust arguments here are ease of exit and technological lock-in. When it comes to free websites that are a Google search away, exit is easy, and technological lock-in is not what it was back in the days of Betamax and VHS.

Regarding privacy policies, Facebook’s reputation is the source of its livelihood. The privacy black eyes it has earned are existential threats, given the ease of exit. One should also keep in mind that anything Facebook could do with user data pales in comparison with what, say, the National Security Agency or Internal Revenue Service could do to their user base. And not only do they charge for their services, exit is rather difficult.

Even if Facebook remains dominant, today’s Facebook will likely be a barely recognizable antique when a years-long antitrust case is decided.

6. Google

The EU has already fined Google a record amount for tying its Chrome browser to its Android operating system. This directly echoes the Microsoft case, where Microsoft got in trouble for tying its free Internet Explorer browser to its Windows operating system. By the time that case wound down, the most common use for Internet Explorer was for downloading its direct competitors. CEI’s Wayne Crews and Iain Murray have more on the EU-Google case here and here.

As for Google’s search dominance, anyone who wishes to do so can do a Google search for its competitors such as Bing. As with the proposed Facebook antitrust case, the ease of exit presents a significant problem for proving monopoly power.

7. Ticketmaster/Live Nation

Live Nation, an event promoter, recently bought out Ticketmaster, and has an overwhelming market share for non-indie music concerts. Pretty much any touring band playing spaces larger than dive bars probably deals with Ticketmaster/Live Nation at most of their U.S. dates.

A competitor, Songkick/Crowdsurge, also recently went out of business. Wu wonders if pernicious behavior by Ticketmaster/Live Nation had anything to do with that, and if an antitrust lawsuit is warranted.

This is the relevant market fallacy all over again. Concerts are one form of entertainment. If people want to go for an evening out, concerts compete with movies, plays, ballgames, bars, restaurants, and countless other activities. Not only are these fun, they also sap the strength of a possible antitrust case against Ticketmaster/Live Nation.

8. T-Mobile/Sprint

This merger is not yet finalized, and might be blocked. Wu says it “appears to be a straightforward anticompetitive merger.” CEI’s Jessica Melugin and MIT’s William Lehr, in separate articles, both think the matter is not so simplistic. As Jessica puts it:

[T]he choice is between today’s two major carriers (Verizon and AT&T) racing toward a 5G world, two lesser carriers (Sprint and T-Mobile), currently not able to compete at the 5G level, and a merger-approved world with three major carriers, all competing for 5G consumers. 

Another factor in play is the knowledge problem. Nobody knows what the optimum amount of firms is in a given market. But people who are confident enough to put their own money at stake are more likely to be right—and to think long-term—than people who aren’t and don’t. Antitrust regulators aren’t and don’t.

9. U.S. Airline Industry

The most effective way to introduce competition into the domestic airline industry isn’t regulatory, it’s deregulatory. For example, current regulations forbid foreign airlines from adding routes between U.S. cities. For example, Air France can offer flights between Paris and New York, or even London and New York. But a New York-Chicago flight is forbidden, and consumers aren’t sure why. Domestic airlines would likely put up a fight, but lifting this regulatory ban on competition would likely be easier than a multi-year antitrust lawsuit. Unlike antitrust regulation, it would also benefit consumers.

CEI’s Fran Smith and Marc Scribner have additional reform ideas to increase airline competition and quality.

10. U.S. Hospitals

One hallmark of monopoly power is rising prices and decreasing output. But many things besides monopoly can cause prices to increase faster than quality. One of them is the fact that in the U.S., nearly 90 percent of health care costs are paid by third parties. By pre-paying most health care costs indirectly through insurance premiums or taxes, few people bother to ask how much a service costs at the point of purchase. Most out-of-pocket health care expenses are a fraction of the total cost, which also reduces cost-sensitivity. As my former professor Russ Roberts put it, “If You’re Paying, I’ll Have Top Sirloin.” The substantial paperwork-hours and voluminous regulations also raise costs and put up entry barriers against possible competitors.

Moving towards a first-party payer model where possible, as people do for other essentials such as food and shelter, would do more than any antitrust action to make possible more affordable, accessible, and high-quality health care. Wu has the right problem in mind, but the wrong solution.