Morgan’s Monopoly Digest – November 2023
By Morgan Harper
- JETBLUE/SPIRIT TRIAL KICKS OFF. Four airlines control 80% of the market, and JetBlue’s acquisition of Spirit would make them the fifth-largest carrier. The DOJ’s case to block the merger started trial last week, featuring testimony from Spirit’s CEO admitting he had feared the deal would eliminate their low-cost routes. The trial is expected to last until December 5th. Economic Liberties released a fact sheet on the merger. You can follow Senior Fellow William J. McGee for trial updates. Bill recently also joined Senator Chris Murphy’s new antitrust series to discuss the case. In other airline news, the Senate unanimously confirmed Michael Whitaker to serve as Administrator for the Federal Aviation Administration (FAA).
Reining in Big Tech
- US V. GOOGLE. The DOJ has wrapped its case, which focused on how Google uses expensive exclusivity contracts — essentially paying off other companies — to dominate internet search while not improving the consumer experience. The government also argued Google leverages that dominance in other markets like digital advertising, gouging business customers. Despite ongoing transparency concerns about the trial from major media outlets, recent proceedings during Google’s side of the case revealed they pay Apple and other device companies $26.3 billion annually to be the default search engine on their devices, a 270% increase from 2014. Check out Big Tech on Trial for ongoing updates and Tim Wu’s discussion on the trial with Sen. Murphy.
- AMAZON’S BILLION DOLLAR SCAM. In September, the FTC filed a lawsuit against Amazon for anticompetitive conduct in managing their online marketplace, but the complaint was heavily redacted. A federal judge in Seattle has now released a less redacted version of the complaint, which details how Amazon made $1 billion off customers in a predatory algorithmic pricing scheme called Project Nessie. Stacy Mitchell from the Institute for Local and Self-Reliance breaks down this and the case’s other key points in a talk with Sen. Chris Murphy.
- AI COMPETES? Artificial Intelligence talk has taken over Washington in the last several months. Sen. Schumer released the SAFE Innovation framework and has begun hosting insight forums with big industry players and civil society leaders, focusing mainly on security and civil rights. President Biden staked out his own position this week in an A.I. Executive Order, which included directives to encourage innovation and competition. This won’t be easy. Big Tech firms have incumbent advantages that new A.I. entrants will have difficulty overcoming without changes to the market structure, and some advocates are skeptical the Administration is being aggressive enough. .
- TAI REJECTS DIGITAL TRADE. By advancing what they call a “digital trade” agenda, Big Tech attempts to use international trade agreements to supersede domestic regulation. The Trump Administration supported their efforts and proposed new provisions for the World Trade Organization, which Big Tech is trying to include in the 14-country Indo-Pacific Economic Framework (IPEF). The current United States Trade Representative (and Competition Council member) Katherine Tai recently announced the administration’s decisions to withdraw these Trump-era rules that have undermined congressional and regulatory agency initiatives to counter privacy abuses, protect gig workers, implement the right to repair, and regulate AI. Economic Liberties led a bloc of unions, consumer, and faith groups on a letter thanking the Biden administration for the move.
Improving Health Care
- GPOs & DRUG SHORTAGES. Drug shortages, usually for essential generic drugs like amoxicillin and cancer therapeutics, negatively affect one in ten American patients. A new Economic Liberties report reveals how dominant Group Purchasing Organizations (GPOs), which negotiate contracts for drugs and medical supplies on behalf of hospitals, contribute to shortages by driving down generic manufacturers’ revenue. The report recommends several solutions, including eliminating GPOs’ legal protection to accept bribes from manufacturers. .
- FTC TAKES ON 100 DRUG PATENTS. Drug and device manufacturers often maintain monopoly power by keeping exclusive listing in FDA’s Orange Book, blocking generics. In September, the FTC issued a policy statement to take action against improper Orange Book listings, and now they are challenging over 100 patents from ten corporations, including for inhalers and epi-pens. Read Economic Liberties’ “The Costs of Pharma Cheating” to learn more about how Big Pharma uses anticompetitive tactics to maintain high prices.
Promoting National Security
- GAO CALLS OUT DEFENSE ON M&A. The Department of Defense (DOD) has reported consolidation as a risk to defense supplier resilience, and a recent Government Accountability Office (GAO) study cites insufficient DOD merger review as part of the problem. The study found that DOD only reviews about 40 out of 400 transactions annually, usually when requested by the FTC or DOJ Antitrust, and recommends the department hire more staff for this purpose. The study follows a DOD report detailing the harms of consolidation and a 60 Minutes segment reviewing how defense contractors are price gouging taxpayers.
- BIG OIL CONSOLIDATES. Consumer gas prices remain persistently high, while oil companies have pocketed record profits in the post-pandemic years. The two largest US oil companies announced they are using this excess cash to lock in mega-mergers. Chevron is trying to buy Hess for $53 billion, while ExxonMobil unveiled a $60 billion takeover of Pioneer Natural Resources. Almost immediately, experts called out how this level of consolidation could further increase consumer prices and restrain production. Sen. Majority Leader Schumer led a letter signed by 22 Senators to the FTC asking them to block the merger and Economic Liberties along with 21 other economic and climate organizations are urging the FTC to take immediate action. .
- CORPORATE CRIME REINS FREE. During the Biden Administration, the DOJ has prosecuted only 99 cases for corporate crime, similar to rates during the Trump Administration and down from the early 2000 levels of over 300 prosecutions annually. Given these low figures, the DOJ’s announcement to give merging companies a safe harbor from criminal prosecution raised eyebrows, including from Sen. Warren. She wrote a letter warning the safe harbor policy would encourage illegal conduct and incentivize mergers, further decreasing competition.
- FED CUTS SWIPE FEES. For every debit or credit card transaction, businesses pay a “swipe fee” to a payment processor. These fees total $138 billion annually and are the second highest cost for many small businesses, after wages. The Durbin Amendment placed a cap on debit card swipe fees, which the Federal Reserve just lowered to 14.4 cents, after finding each debit card transaction’s true cost is on average 3.9 cents. No such cap exists for credit cards, but the Credit Card Competition Act would force the market to become more competitive and lower swipe fees. In the absence of Congressional action, many businesses are starting to pass these costs entirely on to consumers and lawmakers are raising concerns over the $240,000,000 the federal government pays in annual swipe fees. Separately, consumers are suing PayPal/Venmo for raising the cost of transactions by stifling competition in online payment processing. .
- HOUSING PRICE CONSPIRACIES. Home prices are at record highs, and rent prices have risen 11.3% nationally in the past year. Increasingly, antitrust violations appear to be one factor driving these price increases. A federal Missouri jury awarded plaintiffs $1.8 billion in damages from the National Association of Realtors (NAR) and found several real estate brokerages liable for conspiring to inflate commission prices. The DOJ is also investigating these commissions, which can be as much as 6% of a home’s purchase price. In the rental market, the DC AG is suing RealPage, a software platform that allegedly allows landlords to coordinate higher rents. This suit follows the DOJ’s 2020 investigation. .
- JUNK FEE FIGHT EXPANDS. From hotels to apartment rentals and record credit card fees in 2022, Americans pay tens of billions in junk fees annually. The White House recently announced progress in attacking these hidden fees. The FTC proposed a rule to ban junk fees and will begin accepting public comment soon, in addition to returning almost $100 million to Vonage customers who had paid fees after being trapped in subscriptions. The CFPB announced having returned consumers $140 million in junk fees from auto loans, banking, and remittances. States are also taking action. Junk fees are now illegal in California, and the Pennsylvania House advanced a bill to ban ticketing, food delivery, and lodging fees.
Industrial Policy Implementation
- HEAT PUMP MONOPOLIES. Economic Liberties has created a new series to explore competition issues in industrial policy implementation. The first report examines heat pumps, an energy-saving technology the Inflation Reduction Act supports. The heat pump market has seen increased acquisition activity, with larger companies funneling funds into dividends and stock buybacks instead of improving their product delivery. The paper suggests changes to boost competition, including charging the relevant government implementation agency to collect market structure data.
- The Office of Information and Regulatory Affairs (OIRA) released guidance to help agencies consider competition when analyzing rules. .
- The White House convened advocates, lawmakers, and enforcers to celebrate Right to Repair successes. .
- Jon Donenberg, a Sen. Warren staffer, will be the next deputy director of the National Economic Council. .
- The Japan Fair Trade Commission is investigating Google Search for antitrust violations. .
- T-Mobile leaked documents show plans to forcibly migrate consumers to a more expensive plan without their knowledge, a prediction of higher prices many made after their merger with Sprint. .
- European Union (E.U.) competition regulators are forcing US biotech company Illumina to sell its cancer test developer Grail after the company proceeded with an unapproved $8 billion acquisition. After receiving backlash from Carl Icahn, Illumina’s chief executive Francis deSouza resigned. E.U. regulators are also reopening their investigation into Adobe Photoshop’s $20 billion acquisition of Figma. .
- Agri Stats, a corporation that the DOJ is suing for sharing anticompetitive information among rival meatpackers, lost its attempt to seal company details during the lawsuit. .
- Kraft Heinz, Kellogg’s, General Mills, and Nestle are suing Cal-Maine Foods and Rose Acre Farms, the two largest U.S. egg producers, for conspiring to inflate the price of eggs.
BRIEFINGS & EVENTS
- November 14 at 2:00 PM ET, Economic Liberties is hosting an event with the UFCW locals to discuss why the FTC should block the Kroger/Albertsons merger. RSVP here! .
- ReThink Trade, a program of Economic Liberties, co-hosted a fireside chat with Sen. Warren to discuss the harms of Investor-State Dispute Settlements (ISDS), agreements that empower corporations to sue governments outside of domestic laws and courts, and how they can be remedied.