In relentless focus on price, antitrust misses the bigger picture

31 January 2017 9:54am

August 17 2016. By Leah Nylen.

Current US antitrust policy is focused too much on price and not enough how mergers might affect value and quality.

That prioritization has led enforcers to emphasize the potential efficiencies created by large entities at the expense of small businesses, which often provide better customer service, more marketplace diversity and innovation, said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, a nonprofit focused on community economic development.

Mitchell’s conclusions were published on Aug. 10 by the American Antitrust Institute, a think tank devoted to greater antitrust enforcement, as part of a series on the intersection of entrepreneurship and competition policy.

The trend first gained traction during the Reagan administration under then-US Assistant Attorney General William Baxter, Mitchell posits. The focus on efficiencies led to greater emphasis on mathematical modeling to the detriment of other aspects that are harder to quantify.

“I think that that’s one of the ways in which we’ve gone wrong with antitrust enforcement is that we have over-emphasized measures that we can quantify, and those that are difficult or impossible to quantify have moved into the background,” Mitchell said in an interview with MLex. “It’s not that mathematical analysis isn’t important. It’s if you become overly focused on those tools, you exclude other things that are also important.”

Underlying the focus on mathematics and efficiency is an assumption that large companies ensure lower prices for consumers and that smaller businesses are inherently less competitive and efficient.

But in her paper, Mitchell offered several examples of how smaller, local businesses offer better value and outcomes than their larger peers. For example, North Dakota state law requires that drugstores be operated by a pharmacist. That law has helped independent local pharmacies thrive, offering among the lowest drug prices in the country. While local pharmacies elsewhere in the country have had trouble negotiating with pharmacy benefit managers to receive the same deep discounts that chain outlets can get, North Dakota’s pharmacies haven’t encountered the same problem because they are the only option for sales in the state.

Community banks and credit unions also tend to charge lower fees than their national counterparts, do a better job of judging and managing risk and devote a larger share of their resources to lending, particularly to small businesses, she said.

Mitchell suggested that antitrust enforcers pay more attention to the non-price effects of mergers, including the impact on new entrants and small businesses, and devote more enforcement to unilateral conduct and vertical mergers, in which a company buys another part of the distribution chain.

For example, Mitchell said in the interview, sociological research has shown that when a community loses a business headquarters, which can happen in the course of a merger, it can have a significant effect on the economic well-being of the community.

“There’s a material loss that happens there,” she said. “How do you define that in context of merger? It doesn’t lend itself to mathematical analysis. It doesn’t mean it’s not valid.”

Those considerations fade “into background because it doesn’t fit into the mathematical approach,” she said.

Other suggestions by Mitchell — that the agencies revisit the Robinson-Patman Act, a 1930s law that bars price discrimination, and undertake an in-depth market study on Internet platforms such as Amazon with an eye toward regulating them in the same manner as telecoms — are less likely to garner widespread support.

But Mitchell’s thesis and her recommendations on mergers and enforcement succinctly capture a common refrain that has emerged this year on the political left: The current paradigm for antitrust enforcement has allowed too much concentration in the US economy and it’s time for a new approach.

In an October op-ed, Democratic presidential candidate Hillary Clinton expressed concern about large corporations and their control over the market, calling out the pharmaceutical and health insurance industries in particular. Clinton pledged to “beef up” antitrust, providing greater resources to the DOJ and FTC for enforcement and “in-depth industry research to better understand the link between market consolidation and stagnating incomes.”

Senator Elizabeth Warren, a liberal Democrat who has been stumping for Clinton, also called for greater antitrust enforcement in a June speech, offering some critiques of the Obama administration’s use of remedies to allow potentially problematic mergers to proceed.

Weeks later, the Democratic Party agreed to add antitrust back into its platform for the first time in 20 years.

Major changes to the focus and tenor of US antitrust enforcement likely depend on the outcome of the presidential election in November. But should Clinton win, some of the shifts advocated by Mitchell are likely to find a more receptive audience.

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