Uncategorized Archives

Economic Analysis and Competition Policy Research

Austin Frerick is the author of the book Barons: Money, Power, and the Corruption of America’s Food Industry, out later this month, which explores the powerful corporations that monopolize entire sectors of the U.S. food system: from pork, beef, and dairy, to grains, coffee, berries, and grocery stores. In his book, Frerick illuminates the ugly underbelly (or, perhaps, “reality” is a more apt word) of American agriculture—sprawling concentrated animal feeding operations (CAFOs), rivers of manure, life-threatening work environments, ever-rising consumer prices, and the individuals and government officials who facilitate and compound these conditions. As a seventh-generation Iowan who works in agricultural and antitrust policy, Frerick is better positioned than most to examine and critique these issues. Frerick’s mother owned a local coffee shop and his grandfather worked in a slaughterhouse at a time when they provided well-paying, middle-class jobs. Growing up in Cedar Rapids, Cargill, the largest private company in America, literally loomed over Frerick’s life: the company’s grain elevators rose above his church, his school, and his home. (As a fellow Iowa native who grew up in Des Moines, I can relate!) The harms caused by industrial agriculture in his home state led Frerick to pursue a career in agriculture antitrust policy. Frerick has worked at the U.S. Department of Treasury, the Congressional Research Service, and Open Markets Institute, and he has also previously served as an agriculture antitrust advisor to President Joe Biden, Pete Buttigieg, Bernie Sanders, and Elizabeth Warren.

I recently caught up with Frerick to discuss his new book, the “barons” of agriculture, and how the American food system has transformed from one defined by robust competition, including small farms and local businesses, to one dominated by monopolists.

Austin, thanks for taking time to interview with The Sling! You recently published your book Barons, and I am curious what made you want to write this book?

I got the idea to write this book back in the spring of 2018. Over Busch Lights at the dive bar Carl’s Place in Des Moines, an Iowa political operative told me about a couple who had recently donated $300,000 to Republican Governor Kim Reynolds in support of her campaign for reelection in a hotly contested race against Democrat Fred Hubbell. According to the operative, the donors were hog farmers who owned a private jet emblazoned with the phrase “When Pigs Fly.”

I just found this image to be such a powerful example of what happened to Iowa over my life: the power of robber barons in the food system has overrun the state’s government to the detriment of its environment and its communities. My curiosity led me to co-write an article about the Hog Barons in Vox. But as I dug into their story, I realized that they’re just part of a bigger trend that has transformed the food system in places across the country and beyond. I wrote this book as an attempt to grapple with how that happened.

In your book, you focus on the “barons” of various agricultural industries. Why did you decide to structure the book the way you do?

Each chapter is built around both a baron and a key concept. I first figured out the key ideas I wanted to touch on in the book and then worked backwards to figure out which baron best encapsulates each idea. For example, the Berry Baron chapter is really about the outsourcing of America’s produce system. I used the story of Driscoll’s to explain how this happened and what it means for farmworkers.

Likewise, I tell the story of JAB Holding Company, which is owned by a secretive German family that took over the global coffee industry in less than a decade by gobbling up countless independent companies using wealth traced back to the Nazis. You probably haven’t heard of JAB, but I promise that you’ve heard of their brands: Peet’s Coffee, Caribou Coffee, Einstein Brothers Bagels, Bruegger’s Bagels, Manhattan Bagel, Noah’s NY Bagel, Krispy Kreme, Pret A Manger, Insomnia Cookies, Panera Bread, Stumptown Coffee Roasters, Intelligentsia Coffee, Green Mountain Coffee, Trade Coffee, and Keurig. I use their story to talk about changes in American antitrust law and what those changes mean for democracy.

I was shocked when I read the part of your book about JAB owning all those coffee competitors (or maybe I should say former competitors). You clearly did a ton of research for this book. What one story surprised you as you researched the book? Any bizarre experiences that didn’t make it into the book?

While researching the chapter on the Dairy Barons, I discovered a previously unreported incident in which a worker died on their farm in January 2021. The incident took place in a barn that I happened to tour just a few months later. Records from the Indiana office of the Occupational Safety and Health Administration described the man as a forty-seven-year-old recent immigrant born in Honduras who spoke limited English. He had been working a twelve-hour shift near manure equipment when his clothing got caught in the machinery. He was pulled in and died from asphyxiation. He left behind a wife and three children. In response, OSHA fined the Dairy Barons just $10,500. But sadly, what surprised me most in this tragedy was how hard it was for me to uncover what happened. It took years of persistent hounding to get this information.

As you were researching and writing Barons, did you face any push-back?

Yes. In May 2021, I was driving down Highway 6 just five miles east of Grinnell heading to a site visit when I noticed a multistory industrial animal facility (what some might call a CAFO) going up. I’ve driven this stretch of road hundreds of times, so I knew it pretty well and recognized the new building instantly. I had read about the use of multistory industrial animal facilities in China, but I had never seen or read about one in America. I pulled over, took a picture, and tweeted out, “I passed what I assume is one of the first-multi-story CAFO/confinement farms in America. … Truly horrifying.” The tweet went sort of viral, and the Des Moines Register ended up doing a story based on my tweet.

After the publication of that story, I did not think much of it until a few weeks later when my boss forwarded me an email she had received. Although this new multistory CAFO was built for chickens, the Iowa Pork Producers felt the need to email my boss and even the dean [at Yale University, where Frerick was working at the time,] about my tweet. This is the body of the email:

Imagine my surprise when I read this online story from the Des Moines Register that gave credit to one of your faculty members for starting a hullabaloo over a wild conjecture he decided to throw out into the public without any research or fact-finding. In my mind, the Yale brand has lost stature. Trust and valued scholarly work are based on the breadth of a person’s work. Evidently Mr. Frerick’s process is to drive down the road, take photos and then guess as to what’s going on. Careless use of Twitter has been the Achilles heel for many of higher stature than Mr. Frerick. Perhaps you could offer him advice or training on its proper use while throwing around his university affiliation.

My boss told me to laugh it off and not to worry, but I know the story would be different if I was at a university where Big Ag runs the show. To be frank, instead of being told by my boss to laugh it off, I’d probably be shown the door right then or pretty soon after.

I mention this story because I’ve heard countless versions of it in the course of the five years I wrote this book from others who were not so lucky. Modern day industry pushback tends to happen in the shadows in ways you don’t overtly see.

That is such an insane story, but I have heard of this sort of corporate bullying. Speaking of which, your book examines how single corporations have come to dominate various ag industries—from grain to berries to pork. How does the consolidation in these markets impact everyday Americans?

Most of these barons became powerful because they were willing to cross ethical lines that others weren’t willing to cross. They then used this advantage to corrupt the political system and compound their economic power. You really see an example of this process in my first chapter on the Hog Baron. The cost of this corruption is that we can’t solve basic problems and government is no longer responsive to people’s needs. It increasingly functions to serve the barons’ interests.

This corruption matters to all of us. The food we consume and the way it is produced has enormous implications for our health and our environment. It impacts the strength of our cities and towns, the cleanliness of our air and our water, and, in the face of global climate change, the livability of our planet. Food is also incredibly important to our sense of identity and culture. The corruption of our food system benefits a handful of barons to the detriment of all of these values.

Okay, lastly, you mentioned that you have a “series of B-side barons” that didn’t make the cut. If you wrote a sequel, which barons would you include that didn’t make it into the book?

Oh, I am glad you asked. I maintain a Word file to this day where I jot down notes or tidbits that I see, read, or hear. For example, I read late last year in Forbes that two businesses produce around 60 percent of all carrots! What’s even more wild is that one of the producers is based in a suburban Indianapolis office park, but it grows the carrots in California. Stories like this one always capture my attention.

But my favorite B-side baron is the story of Sysco, the largest restaurant food distributor in the country. I got obsessed with Sysco and the story of its founder, who is a more sympathetic figure than the other barons in the book, even though the company he created has morphed into a bit of a Frankenstein’s monster. I also did a lot of research on Cal-Maine, which sells one in five eggs nationally.

As I mentioned, I need to be able to use a baron’s story to talk about a structural issue that hasn’t been touched on yet. If I were to write a sequel, I would love to touch on farmland access, the use of prison labor, and labeling. I just couldn’t find the right barons to dive into these issues. But I’m always on the lookout for the right fit, and I welcome suggestions!

Kate M. Conlow is an Iowan, lawyer, and antitrust scholar. All views expressed here are hers alone and do not represent those of her employer.

After about a decade of teaching, it finally occurred to me that interviewing an accomplished economist (or economic critic) would be more entertaining—and hopefully more educational—than asking students to listen to me wax on about economic expert “war stories” for two hours. Also, by inviting a book author, I could compel students to digest the reading material before class, by submitting ten original questions with pinpoint cites to the reading in advance of the lecture. But which economist would I invite?

I’ve always been fascinated with books about the influence of economics on the law and how the economic mindset has largely screwed up our society; books like MacLean’s Democracy in Chains, Appelbaum’s The Economists’ Hour, or Popp Berman’s Thinking Like an Economist. (A sub-strand of this genre by Wu, Stoller, Philippon, Teachout, Dayen, and several others explores how Chicago School economists neutered antitrust enforcement, to the betterment of monopolists.) The latest installment in this school of thought is Economics in America: An Immigrant Economist Explores the Land of Inequality, by Angus Deaton.

I was confident that Professor Deaton, having won the Nobel Prize in 2015 and presumably having more important things to do than speak with undergraduates in an economics department with a heterodox reputation, would either ignore my invite or politely decline. To my delight, I was wrong, per usual. And the experience was magical. (Popp Berman spoke to my class as well this semester, and Deaton calls her book “persuasive.”)

Economics in America is not Deaton’s first popular (and non-technical) book. Along with Anne Case, he is the author of Deaths of Despair and the Future of Capitalism (Princeton Press 2021). For those who are too busy to read it, Case and Deaton penned a wonderful op-ed about these deaths in the New York Times. Deaton’s research focuses primarily on poverty, inequality, health, well-being, and economic development. In the technical realm, he is the author, along with John Muellbauer, of Economics and Consumer Behavior (Cambridge Press 1980), which was used in my first-year microeconomics course in graduate school.

Deaton’s three degrees in economics were earned at the University of Cambridge. He came to America with an offer to teach at Princeton. When he arrived, Ronald Reagan was dismantling the welfare state and regulation, as government interference in markets—and Keynesian economics generally—was blamed for stagflation in the late 1970s. (Keynesianism seems to be have been reborn in the aftermath of the Covid shock, with both parties embracing public-sector stimulus to revive economic fortunes.) Deaton was surprised by Americans’ apathetic attitudes towards inequality and poverty generally, especially compared to the widespread support of the safety net that had been erected in his home of Britain to fight disease and homelessness.

Gatekeepers Gonna Gatekeep

Economics in America begins with the story of how Card and Krueger’s seminal work on the minimum wage, which produced a result counter to the economic orthodoxy that the minimum wage reduced employment and counter to the interests of the business community generally and the fast-food industry in particular. Their findings were roundly rejected by the economics establishment or “gatekeepers,” as I like to call them. He chronicles the attacks by Paul Craig Roberts, Thomas Sowell, the Wall Street Journal editorial page (surprise!), David Neumark (whose minimum wage research, as the book notes, is funded by business groups), Finis Welch, and June O’Neill.

For those who are new to the debate, Card and Krueger exploited a natural experiment in two neighboring states (New Jersey and Pennsylvania) to show that that increasing the minimum wage in New Jersey did not increase unemployment, as the simplistic economic models would have predicted. One explanation for their surprising result was that employers like Wendy’s, despite their small footprint in fast-food employment within a commuting zone, enjoy a modicum of wage-setting power over their employees, due to high switching costs caused in part by firm-specific training. These switching costs in turn allow these employers to absorb increases in labor costs from a minimum wage hike without cutting jobs. (The profession reacted similarly to the notion that profiteering and price gouging by large corporations was to blame for some material portion of inflation. I had to block so many IO economists on Twitter!) Deaton concludes the chapter by noting that conventional wisdom in economics is “weighted towards capital and against labor.” But he never goes so far as to say that economics has been corrupted by capital—that is, in their constant pursuit of funding, economists say whatever capitalists want to hear. (He is more diplomatic than me.)

There’s a great revelation early in the book that Barack Obama, during a debate with Hillary Clinton, denounced the insurance mandate—which would require everyone to have coverage and thereby address the adverse selection problem—as being unnecessary to an effective health care overhaul. Of course, the mandate was ultimately included in Obamacare. I feel like this episode reveals a lot about Obama’s commitment to progressive values. That plus surrounding himself with neoliberals like Jason Furman and Larry Summers, who have revealed themselves to (a) be hostile to government spending even in a recession (now twice) and (b) subscribe to the outmoded theory that inflation is driven by wage demands (aka greedy workers).

In a chapter devoted to poverty, Deaton elegantly describes the official poverty metric from the Census Bureau as a “statistical stupidity,” because it fails to account payments from government programs. Thus, the war on poverty can never be won.

Poverty-Inflicting Corporate Behaviors

It is curious why a Democratic candidate (or office holder) cannot explain this statistical flaw to voters. Deaton ends the chapter by noting that donating for poverty relief in the places in the United States where jobs are being lost would draw attention “to those corporate behaviors that were contributing to that domestic poverty” (emphasis added). The book does not spell out, at least here, which “corporate behaviors” he had in mind, and how they contribute to poverty. Later in the book, however, Deaton cites corporate acquisitions—in particular, rich companies buying up competitors before they are a threat—as a mechanism by which income inequality (aka extreme wealth) limits opportunities. Though he did not list them, other anticompetitive “corporate behaviors,” including no-poach provisions and non-competes, also might be contributing to domestic poverty, by restricting worker mobility and thereby reducing their best outside options. (During my interview, Deaton confirmed that these other corporate behaviors are contributing to poverty.)

In a chapter devoted to inequality, Deaton discusses the hostility among Chicago School economists to the concepts of fairness and inequality. It’s pretty obvious that their preferred economic policies will “score” poorly on those dimensions, but will “score” better on their preferred metrics such as efficiency or output. The strategy of moving the goalposts to accommodate one’s preferred policies seems so obvious in hindsight. It begs the question as to why these results-oriented approaches were not sniffed out by courts.

Economics in America explains how income equality is perpetuated by market forces. Deaton writes that “income inequality seems to get in the way of [economic] opportunity.” One mechanism by which this causal story could occur is if the rich hoard the best opportunities for themselves and their children. (This happens outside the pay-to-play scheme for wealthy parents to get their children into top universities orchestrated by Rick Singer, no relation.) Another mechanism by which inequality impairs opportunity is that as disproportionately poor workers get sick while their wealthier peers stay healthy, the wealth gaps will widen.

Antitrust as an Anti-Poverty Tool

The same chapter explains how growing concentration among companies could give employers greater buying power over workers, increasing income inequality. This means that, contra the opinions of Jason Furman—who recently pushed back on a brilliant op-ed by Tim Wu—more antitrust enforcement in labor markets could be used to reduce income inequality. (In disclosure, I serve as an expert for workers in several ongoing labor antitrust matters, including the recently settled UFC monopsony case.) It bears noting that the consumer welfare standard of antitrust, another Chicago School invention, was presumably designed to divert attention away from worker harms in labor markets and towards consumer harms in product markets.

Deaton also hints, contra neoliberal orthodoxy, that a reduction in immigration might reduce income inequality, acknowledging that many economists might disagree. He never spells out the mechanism here. But he suggests that neoliberal economists may have committed some errors in measuring the impact of immigration on wages. My surmise, sticking with the economics-is-corrupt theme, is that economists instinctively defend immigration because immigration benefits large employers—by providing a ready pool of workers willing to supply labor at wages below competitive levels—and because economists are generally auditioning for income from large employers. Indeed, Deaton later writes that “the public perception [is] that economists are apologists for capitalism or they are shills for greedy and immoral corporations.”

So Did Economists Break the Economy?

Deaton finishes the book by exploring whether economists are to blame for breaking the economy and “creating the forces that swamp us today.” He notes that Larry Summers used his influence as Treasury secretary from 1999 to 2001 to “weaken restrictions on the international flow of speculative funds, as well as on derivatives and other more exotic instruments on Wall Street.” In critiquing these and other neoliberal policies that gave birth to the Great Recession, Deaton writes: “This is a tale that cannot be told too often, of government-enabled rent seeking and destruction supported by the ideology of market fundamentalism.”

He laments the anti-Keynesianism that grips the Republican Party (save for the aforementioned deficit spending under Donald Trump during Covid). Economist Robert Barro of Harvard pioneered the libertarian theory that, in response to fiscal stimulus, consumers will pare back spending in fear of future higher taxes on themselves or their descendants, thereby neutralizing the impact of the stimulus. Per Deaton, such “insanity is an embarrassment, and the fact that Barro is taken seriously—and is a professor at Harvard, rather than a fringe blogger—is a sure indication that, indeed, macroeconomics has regressed, not progressed, since 1936.”

In writing about the deaths of despair, Deaton and Case saw the loss of jobs, via globalization and technology upheaval, as the key causal factor; without a job, a desperate American is more willing to engage in harmful activities, including drug abuse and eating poorly. Conservative critiques flipped the story around, blaming the drugs as the cause of despair (rather than the symptom), and speculating that the government was subsidizing opioids through Medicaid. Never mind that only eight percent of opioid prescriptions between 2006 and 2015 were paid for by Medicaid. Deaton explains that the right-wing prescription, often repeated by economists, is “to tell people to be more virtuous,” but that “[e]conomics does not have to be like this.” He concludes that “Joe Biden does not listen to economists in the way that Obama or Clinton did, something that arguably makes him a better president” (emphasis added). This is a sad reflection on the dismal science.

Alas, Deaton offers a prescription for a course correction: “Economics should be about understanding the reason for and doing away with the sordidness and joylessness that come with poverty and deprivation.” The final chapter explains how the “discipline has become unmoored from its proper basis, which is the study of human welfare.” A new breed of progressive economists (count me in) “worry about inequality and are willing to use redistribution to correct the failures of the market, even at the expense of some loss of efficiency.” In addition to redistribution, Deaton writes that we should embrace predistribution policies, or “the mechanism that determine the distribution of income in the market itself, before taxes and transfers.” Among these policies, he endorses distinctly heterodox ideas such as promoting unions, immigration control, tariffs, job preservation, and industrial policy.

Deaton has charted the new course. Will any economists follow it?

As the name implies, Congress passed the antitrust laws to remedy the problem of the trusts—the great agglomerations of capital harming working people. Yet, from that very beginning, the forces of corporate power and oligarchy have used the antitrust laws to attack working people. When the federal government first deployed the antitrust laws against coordinated economic power, they did not use them against trusts like Standard Oil or railroad monopolists; instead, they used them against people organizing workers to fight for better wages. By doing so, the federal government created a threat that haunted the labor movement for decades—the threat of the “labor injunction.” That threat remains today. And the federal government can take a simple step to combat it.

In 1999, while Bill Clinton was serving his second term, port truck drivers across the country decided to get organized and go on strike. But instead of solidarity with their strike action, they received a subpoena from the Federal Trade Commission (FTC) and the threat of a lawsuit under the antitrust laws from their employers. Faced with the threat of legal action from the government and their employers, they abandoned their strike.

The FTC investigated the port truckers even though the antitrust laws specifically exempt labor organizing. These truckers are not the only workers that have been targeted by antitrust authorities. Music teachers, ice skating coaches, and public defenders have all faced the wrath of the FTC. Why? Because they were classified as independent contractors—a classification dictated by their employers. These cases raise a question central to American political economy: which workers have the right to organize?

The answer should be all workers. But, in reality, fewer and fewer workers can organize without the threat of a lawsuit under the antitrust laws.

Today, more and more workers are classified not as employees but as independent contractors in a practice called “workplace fissuring.” This practice is most visible for gig workers. Companies like Uber have fought tooth and nail to preserve their workers’ independent contractor status. But this practice is not limited to gig work companies. It has become a common tactic employed by predatory corporations in every industry. By doing so, they believe they can legally prevent collective action through the antitrust laws. And if you ask antitrust scholars like Herbert Hovenkamp, that Uber drivers are “selling a combination of their labor and usage of their cars” implies the labor exemption to antitrust might not protect them.

But the law and history prove those who would expose workers to antitrust liability wrong. In passing the labor exemption, Congress did not intend to just exempt employees, it aimed to cover all workers organizing to vindicate their rights. Indeed, the text of the Norris LaGuardia Act explicitly states the exemption is not limited to just those “stand[ing] in the proximate relation of employer and employee.” And the Clayton Act does not restrict the exemption’s coverage to employees, but instead states that “[n]othing contained in the antitrust laws shall be construed to forbid the existence and operation of labor…organizations, instituted for the purposes of mutual help[.]” (emphasis added)

Fortunately, this historically accurate interpretation of the law is gaining ground. In 2022, the First Circuit found that a group of independent contractor jockeys could legally organize and strike, rejecting a title-based approach in favor of one that focuses on whether or not workers were selling labor or goods. FTC Commissioner Alvaro Bedoya drew attention to this interpretation of the labor exemption in a speech at a Utah Project event in 2023 and a law review article published this month. (Full disclosure, I worked on this speech while in Commissioner Bedoya’s office and am co-author on the article). A detailed analysis by two NYU scholars has grounded a reading of the exemption which would cover many independent contractors in court precedent and textualist methods.

But this view of the law should be formalized. The FTC and Department of Justice (DOJ) should issue a policy statement declaring that the labor exemption covers independent contractors that are treated like workers, rather than like independent businesspeople, by the company that hired them. While such a policy statement would not be precedential, it would be important persuasive authority for any court examining this issue. It would also provide crucial cover for workers uncertain about whether or not their employers’ threats of legal action are valid. It could not stop an employer from seeking an old-school labor injunction against their workers, but it could help those workers win in court—especially if the enforcement agencies back up the statement with amicus briefs in those cases.

Most importantly, it would remove the real threat of federal prosecution hanging over the heads of American workers. It is the duty of “the most pro-union President…in American history” to remove that threat. The FTC and DOJ must state affirmatively: All workers, not just those granted employee status, have the right to organize and that right will not be abridged by the antitrust authorities. The Biden administration must bury the labor injunction once and for all.

Bryce Tuttle is a student at Stanford Law School. He previously worked in the office of FTC Commissioner Bedoya and in the Bureau of Competition.

According to J.C. Bradbury, an economics professor at Kennesaw State, owners of professional men’s sports teams have received more than $19 billion in taxpayer subsidies this century. And according to a recent article in the Salt Lake City Tribune, men’s professional sports around the United States continue to ask for billions more. The root of the problem is monopoly, as explained below, and unless and until Congress addresses the root cause, citizens should alter their demands from local politicians.

A Game Only Men Get to Play

The taxpayer subsidy game, in which teams like the Washington Capitals threaten to leave their host city unless taxpayers fork over billions in subsidies, is very much a game that only men get to play. Politicians have never been willing to give billions of dollars to build stadiums and arenas for teams in women’s professional sports. Karen Leetzow, President of the Chicago Red Stars of the NWSL, would like that to change:

Women’s sports need to have a seat at the table. We need to be in the mix because otherwise we’re just going to end up chasing our tail around how to grow women’s sports. If you’re a politician, what better way for you to leave a lasting legacy in the state of Illinois or the city of Chicago than to do something that’s never been done, which is provide meaningful funding for women.

As Leetzow summarized the argument, “equity needs to be part of the conversation.”

One suspects that many sports economists would disagree with this statement. The disagreement isn’t about the word “equity.” The disagreement likely is based entirely on the nature of the “conversation.”

For decades, sports economists have objected to the entire conversation politicians and men’s sports leagues have about taxpayer subsidies. Politicians and team owners have consistently argued that spending billions to build a stadium or arena for men’s professional sports teams is justified in terms of economic growth and jobs. Economists who study this issue, though, have offered a very consistent academic response: This is bullshit!

Okay, the response involves a bit more. Essentially, a host of academic studies fail to find evidence that stadiums and arenas are capable of generating significant economic growth. In the end, economists consistently argue these billions in subsidies are just a transfer of money from ordinary taxpayers to billionaire sports owners.

These studies have been published for decades. And sports economists have screamed about this issue for decades. But all this screaming hasn’t turned off the taxpayer faucet. Men’s professional sports leagues have continued to ask for—and continued to receive—billions in taxpayer subsidies.

Diagnosing the (Monopoly) Problem

This leads to a question: Why hasn’t all the objective empirical studies by sports economists (and all the screaming) stopped the subsidies?

If we move past the obvious explanation that people don’t really listen to economists as often as economists might like, we can do what people often do when life doesn’t go their way. We can blame someone!

In this case, the name of the person we should blame is William Hulbert. In 1876, Hulbert, then owner of the Chicago White Stockings (the franchise known as the Chicago Cubs today), launched the National League. Hulbert’s creation brought an “innovation” that today is employed by essentially all professional North American sports leagues: Following the advice of Lewis Meacham, an editor with the Chicago Tribune, Hulbert’s new league decided that each city would only get one team.

The National League was hardly a successful business in the 1870s. The vast majority of the first teams went out of business. So it’s possible that Hulbert and Meacham were simply trying to find a model that ensured the financial success of as many teams as possible in a struggling business. Regardless of what motivated Meacham and Hulbert to employ this innovation in the formation of the National League, this model seems to be the root cause of our current stadium financing problem.

Outside of New York, Los Angeles, and Chicago, most cities today still only get one team in each professional sports league. And because leagues completely control how many teams are in each league, some cities that could clearly support a franchise don’t get a team at all. Consequently, Hulbert’s innovation has led to a world where leagues and its owners have substantial monopoly power over fans (and monopsony power over players). If you want a team, you have to give the owners what they want. And what they want is billions in taxpayer subsidies.

Once again, the owners claim these subsidies create economic growth and jobs. And once again, sports economists scream they are lying. Building stadiums and arenas for them does not create economic growth and does not create jobs. Therefore, we are effectively giving these billionaires taxpayer handouts worth billions.

Ignoring the Economists

All of this is true. But from a politician’s perspective, none of this probably matters. To see this, all one has to do is think back to January 13^th of this year. On that day, the Kansas City Chiefs played the Miami Dolphins in a Wild Card playoff game. Given that this was January in Kansas City, the weather for the game was immensely bad. The temperature was -4 Fahrenheit with wind chills about twenty degrees colder. Not surprisingly, many fans suffered frostbite. And recently it was revealed, some of these fans actually lost fingers and toes.

Let’s think about that for a minute. Fans of football are so addicted to this product that they would risk amputation to watch their favorite team.

Chiefs fans are hardly the only sports fans who are emotionally attached to their team. When the Bills lost to the Chiefs the next week, the video of the Bills fan crying in the stands went viral.

Given this emotional attachment, it should not be surprising that when the Buffalo Bills asked taxpayers in New York to give them more than a billion dollars for a new stadium politicians couldn’t say no. The alternative was to say to the people crying in the stands that their team might not be in Buffalo anymore.

In the end, this is probably not about politicians believing a lie. This is really about teams having monopoly power and knowing that they have created a product that very much controls the emotions of their customers. Assuming we can’t compel sports leagues to permit more competition within a city we need to think about different remedies.

Perhaps we would be better off thinking about this story differently. Sports make people happy (or really sad!). In that sense, stadiums are like building city parks. No one argues that city parks are built to create economic growth. Cities build parks to make people happier. Stadiums very much serve the same purpose.

Therefore, maybe it is time for politicians to just be honest about why we are doing this. We are not using taxpayer dollars to create jobs. We are using these to ensure that the sports teams that make people happy (or sad) will continue to exist.

Of course, some people aren’t sports fans and therefore some people may not like their taxpayer dollars going towards this end. To those people, my response is simple: It is time to grow up and learn how democracy works. Government in a democracy reflects the preferences of everyone in that society. This means that sometimes the government does what you want. And sometimes, it doesn’t.

A Modest Proposal

What we should demand of our government is that it treats people equally (at least, that’s what I want!). If we are going to invest billions in men’s sports, we should at least be willing to invest millions in women’s team sports. Politicians only supporting men’s sports is simply wrong.

Yes, I am sure some economists may still scream we shouldn’t be giving taxpayer dollars to anyone. Seriously, though, that’s not going to stop. As long as sports leagues maintain their monopoly power, politicians are probably going to keep doing this. And that is true, no matter how much you scream.

So maybe we need to try screaming something else. Women’s professional sports are growing and the number of people these leagues make happy (or sad!) is growing rapidly. It is time for politicians to turn the conversation to equity and try and make these fans happy as well!

David Berri is a sports economics and professor of economics at Southern Utah University. Along with Martin Schmidt and Stacey Brook, he is the author of The Wages of Wins: Taking Measure of the Many Myths in Modern Sport (Stanford University Press 2006).

“The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’” – Ronald Reagan

At recent events, Chair of the Federal Trade Commission and mug-emblazoner Lina Khan has taken to quoting Reagan’s cherished tagline above. Not to express ideological alignment, but as a springboard for workshopping her own modern twists on the perils of private tyranny:

At a medical conference, she suggested that the most terrifying words are “I’m from your insurer, and I need prior authorization.”

The following week, Khan quipped to tech workers: “I’m from the App Store developer support team, and your application has been rejected.”

Clearly, Chair Khan is on a roll.

But with a budget that sets staffing below 1979 levels, she has scarce time and resources to devote to perfecting her stand-up comedy routine. So it’s time to open a public comment period to efficiently crowdsource new material.

The most terrifying words in the English language are: I’m from…

Boeing, and the good news is your next flight will come with a free toolkit, including several bolts and a wrench.
A major airline, and I’m surge-pricing your armrest from now on.
UnitedHealth, and I’m here to help you securely process claims.
Big Pharma, and I jot down every patent I own in a big orange book so I don’t forget them or accidentally lend one out to a country in need during a global pandemic.
A pharmacy benefit manager, and I’m here to make Big Pharma look fair and gentle.
Big Tech, and I am a staunch supporter of free speech– so long as that means I get to do ride-sharing discrimination.
Your landlord, and I love this new algorithm that nudges other landlords. (Say no more, say no more!)
The NCAA, and our target audience has a taste for exploitation.
George Mason University’s law school, and this is a dual-purpose job interview/date.
A public company, and my financial reporting is inspired by my favorite art genre: Cubism.
The Wall Street Journal, and our next op-ed attacking Lina Khan will finally exorcise that impotent all-powerful demoness woman if properly hedged with a forward multiple of garlic and a silver stake under a full moon.
The Appropriations Committee, and I’ve made some minor technical adjustments to the appropriations bill after the Wall Street Journal’s patrons whispered sweet nothings about my future career prospects as a professional monop-apologist.
Senator Schumer’s office, and my favorite game show is The Floor is Lava.
A semiconductor company, and I’m confident there’s no geopolitical or seismic imperative to decentralize the industry.
Europe, and I think antitrust is a “side dish” to serious industrial policies. (Hashtag not all Europeans.)
Big Tech, and have you heard of our lord and savior, digital trade?
A Too Big to Fail Bank, and I’m even Tooer Biggerer to Fail now.
Steward Health, and I’m “integrating” your medical needs with those of five thousand bats, all under one roof!
A non-profit AI startup, and our large language model was trained on The Antitrust Paradox pursuant to the secret terms of our deal with the Big Tech company that owns 49.9999% of our stock.
A district court, and I’m thinking let’s just hire a fleet of consultants to monitor the defendant’s behavior for a few years first before we do anything “drastic” like solve any structural problems at hand.
The Chicago School of Economics, and I’m here to teach this class of future political leaders how to do a close reading of legislative history.
Private equity. Period.

Want to play along?

Use the hashtag #KhanStandup on whichever social media platform you are least dissatisfied with.

DISCLAIMER

This piece was not generated by a large language model, and therefore reflects only human attempts at humor. Any copyright infringement is inadvertent and not intrinsic to my business model. Although this piece was proofread by my wonderful husband, it may contain errors that are my fault. Finally, any remaining offensiveness is also my own, despite (unsuccessfully) attempting to seek guidance from an expert sensitivity reader. Void where prohibited.

Laurel Kilgour is a startup attorney in private practice who also teaches policy courses. The views expressed herein do not represent the views or sense of humor of the author’s employers or clients. This is not legal advice about any particular legal situation. To the extent any states might consider this attorney advertising, those states sure have some weird and counterintuitive definitions of attorney advertising.

Want to know why the Washington Post is bleeding readership? Consider this editorial by Catherine Rampell, titled “Stop Your Populist Grandstanding over Wendy’s ‘Surge Pricing.’” If the poors only understood basic economics, they wouldn’t get so frazzled over something so efficient like discounting!

For those who missed out on the fireworks, a quick recap is in order. In mid-February, Wendy’s CEO Kirk Tanner mentioned on an earnings call for investors that the company would soon begin “testing more enhanced features like dynamic pricing.” Tanner had already bragged to shareholders that “there’s a massive opportunity to further unlock digital sales growth” through “segmentation and machine learning, driving a meaningful increase in personalization for our loyalty members.” Tanner noted that “AI-enabled menu changes and suggestive selling” were rolling out soon, and “The incremental sales growth we expect to deliver behind our investment in breakfast, digital, and technology will drive meaningful sales leverage in our restaurants.”

Reminder: We’re talking about Wendy’s. The fast food joint. Square patties, faux-50’s decor…you know, Wendy’s?

The AP reported on the “surge pricing” plan, which inspired some great tweets (copied below) comparing Wendy’s to the stock market—buying a Baconator on the dip, arbitrage-trading tenders at peak, and so on. It was a funny viral story representative of our bleak times, something to groan with your co-workers about over coffee in the morning. As the story became a PR liability and irked a few influential senators, Wendy’s announced that this was all a big misunderstanding: see, they wouldn’t be raising prices when demand was high, they’d be lowering prices when demand is low.

This, of course, was a non-denial denial. Dynamic pricing entails both raising prices when there’s high demand and lowering prices when there’s low demand. In economic parlance, like any price-discrimination scheme, dynamic pricing is a way for a company to extract more consumer surplus than it could with uniform pricing. Wendy’s statement merely framed the higher price point as the baseline, which makes it sound like they’re giving consumers a “discount” when there’s ow traffic at the store. But this is a phantom discount, as it’s being measured relative to an inflated (or “penalty”) price. One could just as easily frame the lower price point as the baseline, which makes it sound like they’re ripping consumers off at peak.

To summarize, Wendy’s is definitely still interested in testing price fluctuations throughout the day depending how busy the store is—in other words, depending on demand. These could be hour-by-hour or even minute-by-minute shifts, thanks to those “AI-enabled menu changes”—it’s all pretty vague right now. No matter what, this will make it harder to judge when Wendy’s raises its prices overall. Unpredictable price shifts would mean a customer would have a hard time adjusting her arrival to take advantage of the purported discount. (Contrast this to an “early bird” special which runs consistently every day from 4:30 pm to 6 pm. If something like that is all that Wendy’s had in mind…well, why didn’t they just say so in their statement after this whole thing blew up?) There’s no reason for designing such a dynamic pricing scheme besides making money, and if it’s profitable, you can bet that every other fast food joint will follow suit.

If you find that really annoying, you’re not alone. Corporate optimization techniques shaving every little pleasure in your life into a packet of data with which to squeeze ever more money out of your wallet sucks. Whoever you are, we can all agree that stuff like this makes life a little bit worse, right?

Enter Washington Post pundit Catherine Rampell, who, in a world of war crimes, legal corruption, and climate tipping points, chose to spend her valuable column space last week defending the sacred honor of manipulative fast-food pricing. “We should have higher expectations of the grandstanding greedflationists who purport to be serving the public by condemning Wendy’s pricing behavior,” Rampell scolded.

She ran through the same dynamic pricing explanation I did four paragraphs ago, but in her telling, Wendy’s was up to an undeniably good thing—those nasty progressives were just manipulating everyone to see it otherwise. “Wendy’s still plans to experiment with varying prices, and that’s totally reasonable,” she assured readers. “Think the weekday matinee deals at your local movie theater or cheaper airfares on low-traffic travel days. […] Just wait until these populists learn about ‘peak’ and ‘off-peak’ train fares!” she scoffed.

(Worth noting for some context: Rampell is a self-described beneficiary and defender of legacy admissions in elite universities. Populism—or more precisely, anti-elitism—is not exactly her preferred rhetorical mode.)

Notice that in all of those Rampell’s discounting examples of movie theaters and trains, the product being sold is limited physical space in a particular location. There’s only so many seats on a train, for example. That means the seller has hard limits on their capacity, in which case there is a plausible defense for well-telegraphed dynamic pricing: incentivizing some people to travel off-peak helps ensure enough train seats for everyone to get from Point A to Point B.

Capacity constraints aren’t much of an issue at Wendy’s. Almost everyone just grabs their paper bag and leaves, and the patty supplies aren’t shifting dramatically from hour to hour. So there’s no compelling justification for dynamic pricing here. In that case, the only reason to do it is if the company thinks it’ll net them more money.

Of course, bars run happy hours and theaters have matinee discounts just to attract more customers and make more money. (I’d argue that both of those are literally more social institutions than going to Wendy’s, but that’s a separate matter.) What’s important is that those price shifts are heavily telegraphed and predictable. The company advertises and runs the same deal from week to week, so it’s clear when the deal is on and when it’s not. Just like the “early bird” special mentioned earlier.

What was worrisome about Wendy’s was hour-to-hour, minute-to-minute, unpredictable price fluctuation based on real-time algorithmic data analysis. The company still hasn’t denied that something like this was the plan all along: Rampell assumed the term “dynamic pricing” referred to something like a daily early-bird special, but algorithmic pricing fits the concept too. It’s honestly the more natural inference from the context of the Wendy’s CEO’s tech-driven remarks.

Wildly fluctuating prices based on other people’s demand is the hallmark of securities trading, hence all the stock-market jokes. This was never a part of going to the neighborhood burger joint before, but now it can be thanks to tech innovations. A purely profit-driven mega-chain like Wendy’s has no reason not to implement something like this, absent public outcry.

This leads to what I think is the heart of Rampell’s complaint: the fact that people really don’t like something which, in terms of neoliberal punditry, is “efficient,” equity considerations be damned.

Businesses raise and lower price as demand rises and falls, which is how supply—in this case, burgers—clears most efficiently, providing the maximum possible utility to both company and consumer. Such is the neat, tidy story taught in every Econ 101 class. By this logic, shifting burger prices algorithmically throughout the day should mean that burger joints can clear their stock even more effectively. Everybody wins!

The problem is that consumers, who have the audacity to value such things as fairness, absolutely hate stuff like this. It’s strange that Rampell raised airlines as an example of dynamic pricing that everyone accepts: is there even one consumer who likes how airline pricing algorithms automatically raise the cost of a plane ticket from minute to minute as user traffic—that is, demand—increases? Is anyone happy that companies can use their information mismatch (they know how many people are actually looking at this flight, but you don’t) to pressure you into paying more than you might if you just had equal information?

Similar information asymmetries contributed to price shocks during the pandemic, a phenomenon pundits like Rampell pejoratively nicknamed “greedflation”: some corporations which weren’t actually short on supplies jacked up their prices, well in excess of any cost increase, amidst the backdrop of generally rising prices and pocketed the extra cash. In 2022, Rampell labeled any attempt to pin inflation on pricing gouging or profiteering “a conspiracy theory,” but didn’t actually refute the core thesis. Nor could she: it’s a well-established phenomenon observed by academics (under the name “sellers’ inflation”), journalists, and research institutes. Indeed, research from the Federal Reserve shows that corporate profits accounted for 41 percent of all inflation from July 2020 to July 2022. Rampell’s Wendy’s piece links back to that earlier article, and continues her campaign against “the grandstanding greedflationists.”

To Rampell, anger at a company maximizing its profits, including through manipulative pricing, is simply human imperfection. If people ultimately pay (never mind that they often don’t have another choice), they’ve revealed that their demand was greater than anticipated. That’s a pretty just-so story, and it assumes away any notion that corporations are members of a society—that even if they could exploit something, that doesn’t mean they should. One wonders whether Rampell could find fault in any corporate strategy, anticompetitive or otherwise, so long as it was deployed unilaterally. It’s as if the neoliberal pundits are in constant audition mode for their benefactors.

Pure mathematical efficiency is not the only value our society cherishes, and I for one am thankful for that. As it gets cheaper and easier for corporations to algorithmically shift prices from moment to moment according to demand, we’ll have to face a choice: does a neoliberal (Borkian) vision of total surplus, including corporate profits, matter more than a shared sense of fair play and predictability in the marketplace? On its own, public backlash is only so effective. People have hated airline pricing for decades, and again, the Wendy’s CEO still hasn’t clarified what exactly “surge pricing” means. In that sense, the Wendy’s debacle stands for a lot more than the price of a cheeseburger. It’s one tiny skirmish in whether the world will continue to be ruled by neoliberal economists and corporate lickspittles, or whether we want something more than efficiency from our economy.

Max Moran is a law student at Willamette University College of Law and a fellow at Revolving Door Project.

Last month, Capital One announced that it plans to purchase Discover in a deal worth $35.3 billion. For their campaign to secure regulatory approval, Capital One is trying to act like a benevolent pro-consumer company that will use economies of scale to lower interest rates and ramp up competition with Visa and Mastercard. But that’s probably baloney.

There’s something missing in the conversation around this merger–namely, along what axis competition among card issuers actually happens. Most coverage seems to assume that everything can be grouped into “costs for consumers,” but that’s not the case. To really get at what the deal’s competitive effects would be, we need to understand what kinds of companies Capital One and Discover are, the industries in which they operate, and what competition in those spaces looks like.

Subprime Borrowers Are Likely to Be Injured

There’s a lot of uncertainty about how regulators will handle this deal. For one, there are a lot of different agencies involved in overseeing credit card competition. In order to go anywhere, the merger first requires sign off by both the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (Fed). This is because Capital One is a nationally chartered bank, making the OCC its primary regulator, while Discover is regulated primarily as a bank holding company, which is the Fed’s ambit. To add more acronyms, the Federal Deposit Insurance Corporation (FDIC), while not primarily involved in the merger approval, could play an advisory role, especially since it is the primary regulator of Discover Bank, which is owned by Discover. Similarly, the Consumer Financial Protection Bureau (CFPB) could flag issues with the merger as it serves as a secondary regulator for all large financial institutions. Finally, the Department of Justice (DOJ) could review the merger under the antitrust laws.

While the OCC, Fed, and FDIC have all dragged their feet in updating merger guidelines and have a history of rubber-stamping bank consolidation, the CFPB and DOJ are significant hurdles. The CFPB’s Rohit Chopra and DOJ’s Jonathan Kanter are both ardent anti-monopolists. Under Chopra, the CFPB has been aggressive in reining in the worst abuses from financial services companies. Kanter, for his part, has also implied a willingness to take on bank mergers that other regulators approved. The DOJ also has a bit more latitude to flex its muscles with financial network mergers than when two traditional banks merge.

The most obvious merger harm, on which the DOJ will focus like a laser, is whether the merger will allow the combined firm to raise interest rates on cardholders. Capital One and Discover both cater to subprime (credit score in the 600s) borrowers. And there is less competition for subprime borrowers, which is part of why Capital One was a successful upstart in the credit card industry to begin with. Given that subprime borrowers already have the most limited options in where they can get credit, and given that these cardholders likely shop for credit cards based on which offers the lowest interest rate, it follows that the merger could cause significant harm to an especially at-risk consumer base. The DOJ should define a market (or submarket) for subprime cardholders.

Even for those cardholders with higher credit scores who may not consider interest rates while selecting a card, card issuers do compete on rewards programs, security measures, annual fees, and other features. The merger could eliminate competition between Capital One and Discover on those dimensions as well.

Be Skeptical of Purported Benefits to Merchants

In addition to the horizontal competition mentioned above, Capital One will also gain Discover’s payment processing network, which constitutes vertical integration. As a result, the merged firm will simultaneously hold more market share in credit card issuing, becoming the single largest firm in the space, while also operating a payment network. The deal would, unequivocally, decrease competition in the card issuer space, where just ten firms dominate the industry. But what will happen on the payment processing side is less clear. Capital One argues this aspect of the deal will enhance competition. But for whom?

Card processing is a space dominated by just two firms: Visa and Mastercard. Far, far, far below them, American Express (AMEX) and Discover operate around the edges of that duopoly. As of the end of 2022, Visa and Mastercard’s networks process about 84 percent of all cards in circulation, 76 percent of the total purchase volume, and hold 69 percent of the total outstanding balance across all credit card networks. Capital One’s best case for the merger being procompetitive is that it can become a viable third competitor to those two card processing behemoths. On its face, this seems like a reasonable point, but the mechanics of how it might work are rather fuzzy.

If and when Capital One moves their cards onto the Discover network fully, they will no longer have to pay processing fees to Visa and Mastercard. (It turns out that Capital One represents a much larger share of the total cards of the Mastercard payment processing network). No longer having to pay for those fees is the headline cost saving measure in the deal, but there are potentially others. The merged company may be able to leverage economies of scale to reduce marketing, administrative, or customer service costs as well. So the merged firm may be able to reduce merchant swipe fees or interest rates for cardholders because of those savings. But would they? It’s hard to see a good reason for them to, absent some kind of binding obligation.

Perhaps the merged firm would want to compete more aggressively against Visa and Mastercard for merchants. But cutting merchant fees seems like a pretty naive reading of how credit card purchases work. Discover is already accepted at the overwhelming majority of American retailers. Because most merchants will accept Visa, Mastercard, Discover, and AMEX in the status quo, it’s difficult to picture the merged firm providing a deal so sweet that merchants would proactively encourage using cards on the Discover network over others, especially given the potential risk of losing customers who hold other cards. The merged firm would have to offer exceptionally low fees to entice merchants to proactively discourage using other card networks. Maybe they can get some merchants to offer a small discount for using cards on their network, but to accomplish that at a scale necessary to dent Visa’s and Mastercard’s omnipresence is difficult to imagine.

But there’s also a sneaky reason to expect that the merger might result in some higher merchant fees. As the American Economic Liberties Project’s Shahid Naeem said, the proposed deal is “an end-run around the Durbin Amendment and will raise fees for American businesses and consumers.” The Durbin Amendment is a component of the Dodd-Frank Act that caps transactions on debit card transaction fees, which merchants pay to the debit card issuers, at $0.21. However there are two built-in exceptions; (1) for debit issuers with less than $10 million in assets; and (2) as Marc Rubenstein pointed out, for Discover, by name. And Capital One has been clear that they want to move all their debit cards over to Discover’s network, which could make all Capital One debit cards eligible for higher fees to merchants.

Moreover, we already have a case study of how a single firm acting as issuer and processor might pan out: American Express already operates as a vertically integrated card issuer-payment processor, and AMEX charges higher merchant fees than Visa or Mastercard. So we shouldn’t expect vertical integration to automatically result in reduced merchant fees.

Be Skeptical of Purported Benefits to Cardholders

Likewise the merged firm could pass along any savings from avoided processing fees to cardholders in the form of lower interest rates. But there’s not much reason to expect that either: Recall that the horizontal aspect of the merger places upward pressure on rates for subprime customers. Any efficiencies flowing from reduced processing costs would have to overcome that upward price pressure.

The issue with any arguments about passing savings from processing costs onto cardholders is that they misunderstand the mechanism by which interest rates are set. Interest rates, both on credit cards and other types of loans, are primarily a function of the cost of borrowing at a given time (the “Prime rate”) plus a markup (the “APR margin”). The cost of borrowing is largely dependent on where the Fed sets interest rates. Hence, processing costs do not tend to enter the pricing calculus for annual credit card interest rates (which are invariant to the number of transactions). Further, a recent report from the CFPB shows that larger card issuers charge 8-10 percent higher interest rates than smaller credit card issuers, suggesting that cost efficiency actually results in higher interest rates for cardholders, not lower. The base interest rate controlled by the Fed is exogenous to all of this; the only question is how much of a premium the lender will charge.

Based on that finding, there are a couple of reasons why the merged firm would be likely to keep premiums over the Fed rates (and hence credit card interest rates) generally high, rather than pass savings on to consumers. To start, the emphasis on subprime lending creates more reason for higher markups; subprime borrowers are considered riskier, so they usually have to pay more to borrow to cover the increased odds of missing repayment. Additionally, because subprime lenders have more limited choices and because that’s the market segment Discover and Capital One both target, the merged firm’s share of subprime credit card issuing will likely require less competition than prime credit card issuing, allowing them to offer worse borrowing terms.

Be Skeptical of Other Purported Merger Benefits

Capital One further claims that the merger would make the combined firm a more potent competitor to Visa and Mastercard, potentially causing the two behemoths to reduce their own merchant fees. But this dynamic is frustrated for three reasons: built-in advantages to Visa’s and Mastercard’s business models, friction in transferring cards onto the Discover network, and disproportionate impacts on Mastercard and Visa that might actually leave only one dominant card processor.

First, Visa and Mastercard partner with lots (like lots and lots) of financial institutions rather than issuing their own cards. And that could give them a lot of advantages over Capital One/Discover. For one thing, people shop around for credit cards to varying extents. Some people look for cards with no annual fees, others make selections based off of perks like airline miles, and some people just get credit cards from the institutions they frequent. Where Mastercard and Visa really get a lot of their strength is from the partner institutions that issue the cards on their networks. This includes consumer-facing banks, credit unions, and financial institutions as well as retailers. And that comes with a lot of in-built advantages. For a start, it allows Visa and Mastercard to share responsibility on offerings like customer service with the issuer. If you go to your credit union and get their Visa credit card, you don’t need to direct every question you have to a Visa call center; many times you can call your credit union and they can answer your questions. That is both convenient and it can foster a larger degree of trust in the card, especially when the issuer is something like a credit union or local bank with whom depositors have a long history.

But there’s another, possibly even stronger, advantage to the Visa/Mastercard model–people can get cards with brand-specific rewards. Imagine you’re a contractor who buys a lot of supplies from Home Depot. The idea of a card that rewards you specifically for spending money at Home Depot could be very tempting, especially because you can often apply for it on your phone right in the store. Or if you shop at Costco, you might get a Costco card. If you travel, maybe you’d like a Southwest or American Airlines rewards card. You can get a Visa or Mastercard for any of those brands and many more. Capital One could try to set up similar partnerships, but that would likely come at the expense of their own card issuing, which is and would continue to be even after the merger, the biggest part of its business.

Second, the argument that the merger will create a more potent rival to Visa and Mastercard depends on the possibility of moving many or all of the credit cards issued by Capital One onto their in-house Discover network. That can be done, but it could well be a mess. Moving significant consumer credit accounts from one payment network to another is a big undertaking and, when it’s been done in the past, has caused major issues including consumers being unable to access their accounts or experiencing a big hit to their credit rating.

Plus there’s something of a catch 22 involved in migrating credit cards from one payment network to another. If Capital One is aggressive in transferring all of its cards onto Discover, then the odds that they actually could save on lower operating costs are much better. Fees for using a payment network are a major cost for card issuers. Moving aggressively also creates more opportunities for fatal mistakes, however, like damaging customers’ credit. On the flip side, Capital One moving only a few of its cards over would give more transition time, but would require them to continue paying fees to Visa and Mastercard without truly becoming a competitor. Either route could also complicate efforts to create rewards programs that rival Visa’s and Mastercard’s programs; other companies may not be eager to participate given uncertainty around how the transfer will play out.

Finally, if Capital One moved all of its cards over to the Discover network, it could usurp about 10 percent of Visa’s transaction volume and around 25 percent of Mastercard’s (Capital One has a lot of cards on both, but Visa has a much larger pool of other issuers’ cards on its network, so Capital One represents a markedly smaller share of traffic on their network). As of 2022, Visa’s network had 385 million cards, Mastercard’s had 309 million, and Discover’s had 75 million. That means that the new distribution (assuming the transaction volume is distributed roughly evenly across cards on all the processing networks) could look like Visa with 347 million, Mastercard with 232 million, and Discover with 191 million.

If that’s how it plays out, there’s some risk that Capital One/Discover would actually cement Visa’s advantage even more. Sure, Visa loses some 39 million cards, but Mastercard, which is already the smaller of the two, loses twice that. So, more than anything, it could be that the one true rival to Visa is weakened, leading a duopoly to become a monopoly. As far as how that impacts market share, Visa would go from 46 percent to 42 percent, Mastercard would plummet from 37 percent to 28 percent, and Discover would jump from 9 percent to 23 percent (for simplicity, AMEX is being treated as exogenous), as shown in the charts below.

And if that’s how it plays out, it could give Mastercard or American Express an opening to try and merge with each other or with other payment networks (i.e. PayPal or Klarna) and pitch it as the only way to preserve any true competition with Visa. The argument there is basically two pronged. First, Mastercard and AMEX are weaker and much less competitive, so they need a leg up to survive. Second, Capital One got to merge, so shouldn’t they? This is a common tactic corporations use in concentrated markets to justify even further concentration. See, for example, airlines.

The Merger Is Likely Anticompetitive On Net

That’s a lot to digest, but broadly, there are six things that need to be kept in mind when evaluating the Capital One/Discover merger:

The merger will have impacts across multiple types of financial products. The two biggest are credit card issuing and credit card payment processing.
Both Capital One and Discover focus largely on subprime borrowers. That means that, even though concentration in the issuer space may not generally be an issue, it could be much worse for those with the least access to credit already.
Even for cardholders who do not consider interest rates while selecting a card, card issuers do compete on rewards programs, security measures, annual fees, and other features that could be gutted if a company has the market share to get away with it.
Capital One is donning a veneer of consumer champion, mostly by claiming that it will be able to compete more effectively with Visa and Mastercard.
Capital One’s ability to compete with Mastercard and Visa is complicated by a number of factors, including built-in advantages to Visa and Mastercard’s existing partnerships and friction in transferring Capital One cards to Discover.
Even in the event that the merger does weaken Visa and Mastercard, it would likely asymmetrically harm Mastercard, potentially making Visa even more dominant.

The proposed merger between Capital One and Discover is complicated for a lot of reasons. Both companies offer an assortment of financial services (see this handy list from US News and World Report). Consequently, the merger will send ripples throughout an array of different banking and financial markets. Yet the meat of the deal centers on credit card issuing and payment processing. Ultimately, there are a lot of reasons why claims about Capital One’s acquisition of Discover being beneficial for consumers should be taken with a grain of salt. There are a lot of antitrust concerns, whether focusing on the card issuer space or payment processing. In particular, the deal would combine two of the largest subprime credit card issuers and could lead to worse terms for subprime borrowers. On the network side, while there is some possibility that Capital One could make the Discover network competitive with Visa and Mastercard, it could just as easily flounder or even make things worse by weakening Mastercard disproportionately. Between all of these competitive harms and other issues, plus concerns around community reinvestment (a concern raised here) and other past regulatory issues (especially recent probes of Discover), this deal could cause serious harm and deserves to face rigorous scrutiny moving forward.

Although the Federal Trade Commission (FTC) is ostensibly an “independent agency,” its chair, Lina Khan, has been authorized by President Biden to destroy capitalism. Chair Khan has hijacked trade policy along with left-wing groups. Her approach to Amazon—a subject from which she should recuse her herself as she wrote an article on Amazon in law school—borders on brain-death and is incredibly weak. Her takes are so bad, you could make a killing betting against her. She could learn a thing or two about monopoly power from watching Shark Tank. Honestly, she keeps whiffing.

Let’s just take one example, the FTC’s case against Amgen. The FTC really went wild at first, but then its bark turned out worse than its bite. So we’re not sure where we come out here. Too much, too little? Hard to say. We blame Chair Khan for our confusion.

Chair Khan keeps chalking up defeats. We think that’s because Khan can’t see the future. Yet she keeps going back to the future.

She is against business, despite her gift to Netflix. And her gift to Walmart and Amazon. Don’t ask us why she’s giving Amazon a gift when she hates Amazon. But Walmart is still taking her on. Regardless, she’s conspiring with foreigners to hamstring U.S. companies. And she’s in the hands of “Big Labor,” which makes her a socialist.

Also, she is literally trying to kill you. It’s so unholy. Seriously, a monopoly can be life-saving! Her decisions have deadly consequences.

Quite frankly, she will grab power wherever she can. Flying too close to the sun can cause you to head for legal trouble.

Of course, the consumer-friendly patriots at the U.S. Chamber of Commerce will fight her. And fight her. Some are tired of fighting her, and have made noisy exits. Which we think show how abusive Chair Khan is. And abusive to staff, too. They are disgruntled. Even Lefties attack her.

Private equity warns her pro-enforcement stance hurts consumers. Really blasted her for that. Because as you know, mergers are pro-consumer, despite what overzealous folks like Chair Khan say. Businesses are really between a rock and Lina Khan’s FTC.

Did we mention that Chair Khan is biased? Against Amazon. Even though she narrowed her sights on them. And against Facebook. She has a Meta Fixation. Thanks to us, she can’t engage in a recusal coverup from all her biases.

Josh Hawley, have you met Lina Khan? Hawley loves Khan, but we don’t. Congress needs to investigate her.

We will say one positive thing about “Ms. Khan,” as we refer to her in an endearing and not-at-all misogynistic way: “Losing doesn’t get her down.” She’s “Taking on the World’s Biggest Tech Companies—and Losing.” Even if it MEANS losing. We think the point we are trying to make is she’s suffered so many setbacks. Yet all this losing is somehow intimidating, even causing a CEO to resign. All the while harassing Elon Musk.

What if she were around when the typewriter was invented? We don’t know, but we do know if she drives, she’ll try to fix her car even if it ain’t broke.

We think it is clear from what we’ve said here that Lina Khan hates business. Because of her and business-hating bureaucrats like her, businesses lack a seat at the table. In essence, corporate America is a political orphan. It’s spurring companies to rethink mergers, because her approach is not a Borkian “light touch.”

She hallucinates. She thinks all mergers are bad too. Biden needs to fix antitrust and rethink her ideas. Hashtag: Not all mergers. Chair Khan is too young and prone to radical ideas. Unlike the Chamber of Commerce, which is old. Oh, if only she didn’t fight the truth of Consumer Welfare! Then she wouldn’t be tempted to take such bad cases. Or any at all, really.

Bottom line. We hate her. Also, is there another U.S. antitrust enforcement agency manned by a man? We forget.

The views expressed here do not represent those of the author’s employers. The author decided to summarize the Wall Street Journal’s position on Lina Khan through its op-eds, editorials, and letters to the editor. There are so many. But he’s summarized the gist in this essay to save you time in the future. You’re welcome.

Articles Used for This Summary:

Healthcare in rural America has hit a crisis point. Although the health of people living in rural areas is worse than those living in metropolitan areas, rural populations are deprived of the healthcare services they deserve and need. Rural residents are more likely to be poor and uninsured than urban residents. They are also more likely to suffer from chronic conditions or substance-abuse disorders. Rural communities also experience higher rates of suicide than do communities in urban areas.

For people of color, life in rural America is even harder. Research demonstrates that racial and ethnic minorities in rural areas are less likely to have access to primary care due to prohibitive costs, and they are more likely to die from a severe health condition, such as diabetes or heart disease, compared to their urban counterparts.

Although rural residents in America experience worse health outcomes than urban residents, rural hospitals are closing at a dangerous rate. Rural hospitals experience a severe shortage of nurses and physicians. They also treat more patients who rely on Medicaid and Medicare, or who lack insurance altogether, which means that they offer higher rates of uncompensated care than urban hospitals. For these reasons, hospitals in rural areas are more financially vulnerable than hospitals in metropolitan areas.

Indeed, recent data show that since 2005, more than 150 rural hospitals have shut their doors and more than 30% of all hospitals in rural areas are at immediate risk of closure. As hospital closures in rural America increase, the areas where residents lack geographic access to hospitals and primary care physicians, or “hospital deserts,” also increase in size and number.

This map is illustrative. It indicates two important things. First, in more than 20% of American counties, residents live in a hospital desert. Second, hospital deserts are primarily located in rural areas.

Empirical evidence demonstrates that hospital deserts reduce access to care for rural residents and exacerbate the rising health disparities in America. When a hospital shuts its doors, rural residents must travel long distances to receive any type of care. Rural residents, however, tend to be more vulnerable to overcoming these obstacles, as some of them do not even have access to a vehicle. For this reason, data show that rural residents often skip doctor appointments, delay necessary care, and stop adhering to their treatment.

Despite the magnitude of the hospital deserts problem and the severe harm they inflict on millions of Americans, public health experts warn that rural communities should not give up. For instance, Medicaid expansion and increased use of telemedicine can increase access to primary care for rural residents and thus can improve the financial stability of rural hospitals. When people lack access to primary care due to lack of coverage, they end up receiving treatment in the hospitals’ emergency departments. For this reason, research shows, rural hospitals offer very high rates of uncompensated care, which ultimately contributes to their closure.

This Antitrust Dimension of Hospital Deserts in Rural America

In a new piece, the Healing Power of Antitrust, I explain that these proposals, albeit fruitful, may fail to cure the problem. The problem of hospital deserts is not only the result of the social and demographic characteristics of rural residents, or the increased level of uncompensated care rural hospitals offer. The hospital deserts that plague underserved areas are also the result of anticompetitive strategies employed by both rural and urban hospitals. These strategies, which include mergers with competitors and non-competes in the labor market, eliminate access to care for rural populations and aggravate the severe shortage of nurses and physicians rural communities experience. In other words, these strategies contribute to hospital deserts in rural America. How did we get here?

In general, hospitals often claim that they need to merge with their competitors to cut their costs and improve their quality. Yet several hospitals often acquire their closest competitors in rural areas just to remove them from the market and increase their market power both in the hospital services and the labor markets.

For this reason, after the merger is complete, the acquiring hospitals shut down the newly acquired ones. This buy-to-shutter strategy has had a devastating impact on the health of rural communities who desperately need treatment. For instance, data show that each time a rural hospital shuts its doors, the mortality rate of rural residents significantly increases.

Even in cases where hospital mergers do not lead to closures, they still reduce access to care for the most vulnerable Americans—lower income individuals and communities of color. For instance, a recent study indicates that post-merger, only 15% of the acquired hospitals continue to offer acute care services. Other studies show that after the merger is complete, the acquiring hospitals often move to close essential healthcare services, such as maternal, primary, and surgical care.

When emergency departments in underserved areas shut down, the mental health of rural Americans deteriorates at dangerous rates. For rural Americans who lack coverage, entering a hospital’s emergency department is the only way they can gain access to acute mental healthcare services and substance abuse treatment. Not surprisingly, studies reveal that over the past two decades, the suicide rates for rural Americans have been consistently higher than for urban Americans.

But this is not the only reason why mergers among hospitals in rural areas contribute to the hospital closure crisis. Mergers also allow hospitals to increase their market power in input markets, most notably labor markets, and even attain monopsony power, especially if they operate in rural areas where competition in the hospital industry is limited.

This allows hospitals to suppress the wages of their employees and to offer them employment under unfavorable working conditions and employments terms, including non-competes. This exacerbates the severe shortage of nurses and physicians that rural hospitals are experiencing and, ultimately, contributes to their closures.

Empirical research validates these concerns. A recent study that assessed the relationship between concentration in the hospital industry and the wages of nurses in America reveals that mergers that considerably increased concentration in the hospital market slowed the growth of wages for nurses. Other surveys show that post-merger nurses and physicians experience higher levels of burnout and job dissatisfaction, as well as a heavier workload.

These toxic working conditions become almost inescapable when combined with non-compete clauses. By reducing job mobility, non-competes undermine employers’ incentives to improve the wages and the working conditions of their employees. Sound empirical studies illustrate that these risks are real. For instance, a leading study measuring the relationship between non-competes and wages in the U.S. labor market concludes that decreasing the enforceability of non-competes could increase the average wages for workers by more than 3%. Other surveys reveal that non-competes in the healthcare industry contribute to nurses’ and physicians’ burnout, encouraging them either to leave the market or seek early retirement at increasing rates. This premature exit also exacerbates the shortage of nurses and physicians that is hitting rural America.

Moreover, by eliminating job mobility, non-competes imposed by rural hospitals prevent nurses and physicians from offering their services in competing hospitals in underserved areas, which already struggle to attract workers in the healthcare industry and meet the increased needs of their patients.

The COVID-19 pandemic illustrated this problem. When, in the midst of the pandemic, there was a surge of COVID patients, many hospitals lacked the necessary medical staff to meet the demand. For this reason, several hospitals were forced to send patients with severe symptoms back home, leaving them without essential care. This likely contributed to the high mortality rates rural America experienced during the COVID 19 pandemic.

Given these risks, my article asks: Can antitrust law cure the hospital desert problem that harms the health and well-being of rural residents? It makes three proposals.

Proposal 1: Courts should examine all non-competes in the healthcare sector as per se violations of section 1 of the Sherman Act, which prohibits any unreasonable restraints of trade.

Per se illegal agreements are those agreements under antitrust law which are so harmful to competition and consumers that they are unlikely to produce any significant procompetitive benefits. Agreements not condemned as illegal per se are examined under the rule-of-reason legal test, a balancing test that the courts apply to weigh an agreement’s procompetitive benefits against the harm caused to competition. When applying the rule-of-reason test, courts generally follow a “burden-shifting approach.” First, the plaintiff must show the agreement’s main anticompetitive effects. Next, if the plaintiff meets its initial burden, the defendants must show that the agreement under scrutiny also produces some procompetitive benefits. Finally, if the defendant meet its own burden, the plaintiff must show that the defendant’s objectives can be achieved through less restrictive means.

To date, courts have examined all non-compete agreements in labor markets under the rule-of-reason test on the basis that they have the potential to create some procompetitive benefits. For instance, reduced mobility might benefit employers to the extent it allows them to recover the costs of training their workers and reduces the purported “free riding” that may occur if a new employer exploits the investment of the former employer.

Applying the rule-of-reason test in the case of non-competes, especially in the healthcare industry, is a mistake for at least two reasons. First, because hospitals do not appreciably invest in their workers’ education and training, there is little risk of such investment being appropriated. Hence, the claim that non-competes reduce the free riding off non-existent investment is simply unconvincing.

Second, because the rule-of-reason legal test is an extremely complex legal and economic test, the elevated standard of proof naturally benefits well-heeled defendants. This prevents nurses and physicians from challenging unreasonable non-competes, which ultimately encourages their employers to expand their use, even in cases where they lack any legitimate business interest to impose them.

Importantly, the federal agencies tasked with enforcing the antitrust laws, the Federal Trade Commission (FTC) and the Department of Justice (DOJ), have not shut their ears to these concerns. Specifically, the FTC has proposed a new federal regulation that aims to ban all non-compete agreements across America, including those for physicians and nurses. Considering the severe harm non-competes in the healthcare sector cause to nurses, physicians, patients, and ultimately public health, this is a welcome development.

Proposal 2: Antitrust enforcers and the courts should start assessing the impact of hospital mergers on healthcare workers’ wages and working conditions

My article also argues that hospital mergers should be assessed with workers’ welfare at top of mind. Failing to do so will exacerbate the problem of hospital deserts, which so profoundly harms the lives and opportunities for millions of Americans. As noted, mergers allow hospitals to further increase their market power in the labor market. The removal of outside work options allows hospitals to suppress their workers’ wages and to offer employment under unfavorable terms, including non-competes. This encourages nurses and physicians to leave the market at ever increasing rates, which magnifies the severe shortage of nurses and physicians hospitals in rural communities are experiencing and contributes to their closures.

Despite these effects, thus far, whenever the enforcers assessed how a hospital merger may affect competition, they mainly focused on how the merger impacted the prices and the quality of hospital services. So how would the enforcers assess a hospital merger’s impact on labor?

First, enforcers would have to define the relevant labor market in which the anticompetitive effects—namely, suppressed wages and inferior working conditions—are likely to be felt. Second, enforcers would have to assess how the proposed merger may impact the levels of concentration in the labor industry. If the enforcers showed that the proposed merger would substantially increase concentration in the labor market, they would have good reason to stop the merger.

In response to such a showing, the merging hospitals might claim that the merger would create some important procompetitive benefits that may offset any harm to competition caused in the labor market. For instance, the hospitals may claim that the merger would allow hospitals to reduce the cost of labor and, hence, the rates they charge health insurers. This would benefit the purchasers of health insurance services, notably the employers and consumers. But should the courts be convinced by such a claim of offsetting benefits?

Not under the Supreme Court’s ruling in Philadelphia National Bank. There, the Supreme Court made clear that the procompetitive justifications in one market cannot outweigh its anticompetitive effects in another. For this reason, the courts could argue that any benefits the merger may create for one group of consumers—the purchasers of health insurance services—cannot outweigh any losses incurred by another group, the workers in the healthcare industry.

Proposal 3: Antitrust enforcers should accept hospital mergers in rural areas only under specific conditions

My article contends that such mergers should be condoned only under the most stringent of circumstances. Specifically, enforcers should accept mergers in rural areas only under the condition that the merged entity agrees to not shut down facilities or cut essential healthcare services in underserved areas.

Conclusion

Has antitrust law failed workers in the healthcare industry and ultimately public health? Given the concerns expressed above, the answer is unfortunately, yes. By failing to assess the impact of hospital mergers on the wages and the working conditions of employees in the hospital industry, and by examining all non-competes in labor markets under the rule-of-reason legal test, the courts have contributed to the hospital desert problem that disproportionately affects vulnerable Americans. If they fail to confront this crisis, the courts also risk contributing to the racial and health disparities that undermine the moral, social, and economic fabric in America.

Theodosia Stavroulaki is an Assistant Professor of Law at Gonzaga University School of law. Her teaching and research interests include antitrust, health law, and law and inequality. This piece draws on her article “The Healing Power of Antitrust” forthcoming in Northwestern University Law Review 119(4) (2025)

In condemning Nippon Steel’s proposed acquisition of U.S. Steel, many politicians, from John Fetterman to Donald Trump, are ignoring the severe costs of the alternative tie-up with a domestic steel-making rival—the harms to competition in both labor and product markets from the alternative merger with Cleveland-Cliffs (the “alternative merger”). Whatever security concerns might flow from ceding control of a large steel operation to a Japanese company must be assessed against the likely antitrust injury that would be inflicted on domestic workers and steel buyers by combining two direct horizontal competitors in the same geographic market. This basic economic point has been lost in the kerfuffle.

Harms to Labor

The first place to consider competitive injury from the alternative merger is the labor market, in which Cleveland-Cliffs and U.S. Steel compete for labor working in mines. If Cleveland-Cliffs (“Cliffs”) had been selected by U.S. Steel, there would only be one steel employer remaining in some geographic markets such as northern Minnesota and Gary, Indiana. This consolidation of buying power would have reduced competition in hiring of steel workers, almost certainly driving down workers’ wages by limiting their mobility.

To wit, Minnesota’s Star Tribune noted that “Cleveland-Cliffs and U.S. Steel have long histories on Minnesota’s Iron Range, controlling all six of the area’s taconite operations. Cliffs fully owns three of the six taconite mines, and U.S. Steel owns two.” Ownership of the sixth mine is shared between Cliffs (85%) of U.S. Steel (15%). A Cliffs/U.S. Steel merger also would have made the combined company the sole industry employer in the region surrounding Gary, per the American Prospect. Additional harms from newfound buying power include reduced jobs and greater control over workers who retain their jobs.

The newly revised DOJ/FTC Merger Guidelines explain that labor markets are especially vulnerable to mergers, as workers cannot substitute to outside employment options with the same ease as consumers substituting across beverages or ice cream. But the harm to labor here is not merely theoretical: A recent paper by Prager and Schmitt (2021) found that mergers among hospitals had a substantial negative effect on wages for workers whose skills are much more useful in hospitals than elsewhere (e.g., nurses). In contrast, the merger had no discernible effect on wages for workers whose skills are equally useful in other settings (e.g., custodians). A paper I co-authored with Ted Tatos found labor harms from University of Pittsburgh Medical Center’s acquisitions of Pennsylvania hospitals. And Microsoft’s recent acquisition of Activision was immediately followed by the swift termination of 1,900 Activision game developers, a fate that was predictable based on the combined firm’s footprint among gaming developers, as well job-switching data between Microsoft and Activision.

This is the type of harm that the U.S. antitrust agencies would almost assuredly investigate under the new antitrust paradigm, which elevates workers’ interests to the same level as consumers’ interests. Indeed, the Department of Justice recently blocked a merger among book publishers under a theory of harm to book authors. Under Lina Khan’s stewardship, the Federal Trade Commission is likely searching for its own labor theory of harm, potentially in the Kroger-Albertsons merger.

And the Nippon acquisition would largely avoid this type of harm, as Nippon does not compete as intensively, compared to Cliffs, against U.S. Steel in the domestic labor market. To be fair, Nippon does have a small American presence: It has investments in several U.S. companies and employs (directly and indirectly) about 4,000 Americans—but far fewer than U.S. Steel (21,000 U.S. based employees) and Cliffs (27,000 U.S. based employees). Importantly, Nippon employs no steelworkers in Minnesota, and its plants in Seymour and Shelbyville, Indiana are roughly a three-hour drive from Gary.

It bears noting that United Steelworkers (USW), the union representing steelworkers, has come out against the Nippon/U.S. Steel merger, alleging that U.S. Steel violated the successorship clause in its basic labor agreements with the USW when it entered the deal with a North American holding company of Nippon. This opposition is not proof, however, that the alternative merger is beneficial to workers, or even more beneficial to workers than the Nippon deal. Recall that the union representing game developers endorsed Microsoft’s acquisition of Activision, which turned out to be pretty rotten for 1,900 former Activision employees. Sometimes union leaders get things wrong with the benefit of hindsight, even when their hearts are in the right place.

Harms to Steel Buyers

Setting aside the labor harms, the alternative merger would result in Cliffs becoming “the last remaining integrated steelmaker in the country.” Mini-mill operators like Nucor and Steel Dynamics do not serve some key segments served by integrated steelmakers, such as the market for selling steel to automakers. In particular, automakers cannot swap out steel made from recycled scrap at mini-mills with stronger and more malleable steel made from steel blast furnaces. According to Bloomberg, a combined Cliffs/U.S. Steel would become the primary supplier of coveted automotive steel.

The prospect of Cliffs acquiring U.S. Steel triggered the automotive trade association, the Alliance for Automotive Innovation, to send a letter to the leadership of the Senate and House subcommittees on antitrust, explaining that a “consolidation of steel production capacity in the U.S. will further increase costs across the industry for both materials and finished vehicles, slow EV adoption by driving up costs for customers, and put domestic automakers at a competitive disadvantage relative to manufacturers using steel from other parts of the world.”

Moreover, a U.S. Steel regulatory filing detailed how antitrust concerns in the output market factored in its decision to reject Cliffs’s bid. U.S. Steel’s proxy noted: “A transaction with [Cliffs] would eliminate the sole new competitor in non-grain-oriented steel production in North America as well as eliminate a competitive threat to [Cliffs’s] incumbent position in the U.S., and put up to 95% of iron ore production in the U.S. under the control of a single company.”

Once again, the lack of any material presence by Nippon in the United States ensures that such consumer harms are largely limited to the Cliffs tie-up. An equity research analyst with New York-based CFRA Research who follows the steel industry noted that Nippon has a “very small footprint currently in North America.”

Balancing Security Concerns Against Competition Harms

Regarding national security concerns from a Nippon-U.S. Steel tie-up, The Economist opined these harms are exaggerated: “A Chinese company shopping for American firms producing cutting-edge technology that could help its country’s armed forces should, and does, set off warning sirens. Nippon’s acquisition should not.” If the concern is control of a domestic steelmaker during wartime, the magazine explained, U.S. Steel’s operations “could be requisitioned from a disobliging foreign owner.” For the purpose of this piece, however, I conservatively assume that the security costs from a Nippon tie-up are economically significant. My point is that there are also significant costs to workers and automakers from choosing a tie-up with Cliffs, and sound policy militates in favor of measuring and then balancing those two costs.

Finally, this perspective is based on the assumption that U.S. Steel must find a buyer to compete effectively. Maintaining the status quo would evade both national security and competition harms implicated by the respective mergers. But if policymakers must choose a buyer, they should consider both the competition harms and the national security implications. Ignoring the competition harms, as some protectionists are inclined to do, makes a mockery of cost-benefit analysis.

Since the boycott of the U.S. News and World Report Rankings (“U.S. News Rankings”) by a group of law schools, the U.S. News Rankings have gone a bit haywire. The top law schools, all highly ranked, refused to submit data to U.S. News. Other schools followed their lead. As a result, U.S. News changed its rankings, perhaps focusing a bit more on publicly available data.

But that has led to speculation of potentially wild results. In the past, such dramatic ranking shifts were somewhat limited, but with the changing rankings, and the apparent new norm of frequent changes to methodologies, such radical changes might be in our future. It is striking, though, how the fluctuations rarely seem to affect the higher ranked schools.

Meanwhile, prospective law students, perhaps largely unaware of these fluctuations because the top-ranked law schools barely change, are likely still invested in the U.S. News Rankings for determination of what makes a good law school. A quick check assures that the schools they know are prestigious like Harvard and Yale are in the top ten, with little variation year to year.

And, despite the understanding in the legal academy about the inconsistency and other problems, the U.S. News Rankings are still used by some schools as an aspirational goal and a publication goal (with some schools offering anti-intellectual publication bonuses for high-rank placement). Others use the rankings for marketing materials to prospective faculty candidates and students.

In this essay, I list five problems with the U.S. News Rankings, and I offer a few concrete solutions.

Problem 1: Information Asymmetries between Prospective Students and U.S. News

Prospective students know little about the ranking methodology or its impact. For example, students may know what percentage of the rankings is based upon peer assessment, but not know that the peer assessment has problems, such as the monopoly power a few schools wield in the law professor labor market. Students likely do not know of relative changes in rankings over time, so are unable to determine whether a rapid change is a mere blip or a genuine trend downward or upward. In short, the prospective student may be deceived by the nature of the rankings and the changes in how rankings are calculated.

Problem 2: Information Asymmetries between the Law Schools and U.S. News

As the dominant player in the market for rankings, U.S. News has little incentive to expend resources to monitor the data that law schools provide, to correct inaccurate data, or to make algorithmic adjustments unless the results produced by its formula are egregiously false or schools flagrantly manipulate the data that they submit. In fact, the value of the rankings endures by virtue of having little change at the top of the list. Should a school experience an unexpected drop in ranking, however, dramatic effects may occur, including dean resignations. Schools seeking to climb the rankings to attract high-quality students, or faced with habitually low rankings, may succumb to pressure to manipulate data to improve their rank. For example, it has been past practice for schools to employ their former students to inflate post-graduation employment statistics.

Problem 3: Favoring Well-Endowed Schools

To the extent that U.S. News alters variables as to what makes a “good school,” it favors wealthier schools that can deploy more resources and adapt quickly to the moving goal posts. But those at the top end of the rankings do not need to worry, as they are virtually guaranteed their spot. Other schools are subject to the potential of rapid fluctuations.

Schools also make significant time investments by creating committees tasked with benchmarking competitive schools, collecting employment data from recent graduates, and grappling with the impact of how varying analyses of the information might affect the U.S. News Rankings.

Part of the methodological shift as such is the post-boycott need to access publicly available data. That need, however, may not be a great basis for the methodology put forward. It may merely be a streetlight effect on methodology road.

Problem 4: The Problem of Potential Retaliation

To the extent that the variables that inform U.S. News Rankings are subject to change, they are potentially subject to abuse. It would be easy to add variables punishing schools that complain about the ranking’s methodology.

Just two examples should suffice. When Reed College refused to provide data to U.S. News for the general college rankings, instead of omitting the institution from its ranking, U.S. News “arbitrarily assigned the lowest possible value to each of Reed’s missing variables, with the result that Reed dropped in one year from the second quartile to the bottom quartile.” In subsequent rankings, U.S. News allegedly ranked Reed College on information available from other sources, noting that the institution did not complete the requested survey. In the law school context, when Pepperdine discovered an error in its submission, it sought to correct it. As a result of its innocent mistake, its ranking plummeted for a year.

Problem 5: Lack of Competition in Rankings

There are no substitutes for U.S. News Rankings, at least for U.S. law schools. The vast majority of prospective students use them. The vast majority of schools look to them. To the extent it is a monopoly, it has a unique role in shaping legal education. Indeed, not only is it a unique ranking, much effort is made by Spivey Consulting and others to predict those rankings, rather than create new ones.

As Sahaj Sharda has pointed out in The Sling, rankings matter. And it is rife with the possibility of hijinks, both from the university side and from the side of U.S. News.

Solution: An FTC Unfair or Deceptive Act or Practice (UDAP) Rule

Section 5 of the FTC Act states that “unfair or deceptive acts or practices in or affecting commerce . . . are . . . declared unlawful.” Deceptive acts or practices require a “material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances.” An act or practice is “unfair” if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”

The FTC UDAP rules cover common consumer experiences, such as wash-and-dry labels, octane ratings for gasoline, funeral prices, eyeglasses, auto fuel ratings, used cars, energy ratings, door-to-door sales, identity theft, free credit report, contact lenses and eyeglasses, and child protection. In each of these instances, informational and other barriers barred consumers from realizing important information or availing themselves of alternatives.

Why not apply the same principles to rankings? An FTC UDAP rule related to law school rankings could involve three components.

First, the FTC should require U.S. News to disclose the algorithm it uses or to explain in greater detail the amount of weight it puts on each factor that goes into its overall rankings. An algorithm is a mathematical formula that allows data factors to be compiled into an order, based on the relative importance of each input. If an end user has different values or priorities than U.S. News, the algorithm makes a major difference in the list’s outcome. Disclosing the algorithm protects the consumer from false, deceptive, and misleading information.

The FTC should mandate that any alteration of methodology should provide law schools with at least two year’s notice. At present, much of the methodology could be ex-post, surprising schools attempting to climb the rankings.

Second, the rule should eliminate conflict of interest voting and should mandate disclosure of other data. Schools are not in a position to rank themselves; nor are faculty of a school that is dominant in the production of law professors. The bulk of law professors hail from a few schools. Absent a horrific experience, it stands that the bulk of reputation scores favor those schools. This self-perpetuating cycle is not known to prospective students, and ought to be halted.

To the extent post-graduation employment is used, schools ought to be forced to disclose that number. Thus far, U.S. News has been reluctant and unable to determine the extent of such gaming. Subjecting such data submission to a UDAP rule raises the potential risk to a school that such manipulation might become subject to an investigation and an amplified public notice.

Third, the FTC’s rule should impose penalties on schools and U.S. News for violations of the rule. Another feature of a UDAP rule would be consistent deterrence, as opposed to arbitrary punishments that U.S. News might impose upon schools. If such penalties are not linked to the ranking itself, a UDAP rule would still benefit consumers of the ranking, whereas displacing the ranking of a school that misbehaves might penalize beyond the group involved in the decision to manipulate the ranking.

If the FTC were to adopt such a rule, it would bring some much-needed relief to law school applicants and the schools themselves.

The views expressed in this piece do not reflect the views of my employer.

Correction 2/28/24: Since publication, Spivey Consulting reached out to correct an entry error related to Buffalo Law School’s ranking in their post, when Spivey converted that information from their software to the blog. We have corrected the entry here as well. Other schools will still face such drops.

The news of the layoffs was stunning: Three months after consummating its $68 billion acquisition of Activision, Microsoft fired 1,900 employees in its gaming division. The relevant question, from a policy perspective, is whether these terminations reflect the exercise of newfound buying power made possible by the merger? If so, then Microsoft may have just unwittingly exposed itself to antitrust liability, as mergers can be challenged after the fact in light of clear anticompetitive effects.

The Merger Guidelines recognize that mergers in concentrated markets can create a presumption of anticompetitive effects. When studying the impact of a merger on any market, including a labor market, the starting place is to determine whether the merged firm collectively wielded market power in some relevant antitrust market. That inquiry can be informed with both direct and indirect evidence.

Direct evidence of buying power, as the name suggests, is evidence that directly shows a buyer has power to reduce wages or exclude rivals. Indirect evidence of buying power can be established by showing high market shares (plus entry barriers) in a relevant antitrust market. It bears noting that, when it comes to labor markets, high market shares are not strictly needed to infer buying power due to high search and switching costs (often absent in output markets).

Beginning with the direct evidence, Activision exhibited traits of a firm with buying power over its workers. For example, before it was acquired, Activision undertook an aggressive anti-union campaign against its workers’ efforts to organize a union. Moreover, workers at Activision complained about their employer’s intransigent position on granting raises, often demanding proof of an outside offer. A recent article in Time recounted that “Several former Blizzard employees said they only received significant pay increases after leaving for other companies, such as nearby rival Riot Games, Inc. in Los Angeles.” Activision also entered a consent decree in 2022 with the Equal Employment Opportunity Commission to resolve a complaint alleging Activision subjected its workers to sexual harassment, pregnancy discrimination, and retaliation related to sexual harassment or pregnancy discrimination.

Moving to the indirect evidence, one could posit a labor market for video game workers at AAA gaming studios. Both Microsoft and Activision are AAA studios, making them a preferred destination for industry labor. Independent studios are largely regarded as temporary stepping stones toward better positions in large video game firms.

To estimate the merged firm’s combined share in the relevant labor market, in a forthcoming paper, Ted Tatos and I study CareerBuilder’s Supply and Demand data, filtering on the term “video game” in the United States to recover job applications and postings over the last two years. The table summarizes the results of our search in the Spring 2022, a few months after the Microsoft-Activision deal was announced. Our analysis conservatively includes small employers that workers at a AAA studio such as Activision likely would not consider to be a reasonable substitute.

Job Postings Among Top Studios in Video Game Industry – CareerBuilder Data

Company Name	Number of Job Postings	Percent of Postings	Corporate Entity
Activision Blizzard, Inc.	1,270	26.0%	Microsoft
Electronic Arts Inc.	856	17.5%
Rockstar Games, Inc.	287	5.9%	Take-Two
Ubisoft, Inc.	258	5.3%
2k, Inc.	143	2.9%	Take-Two
Zenimax Media Inc.	128	2.6%	Microsoft
Epic Games, Inc.	112	2.3%
Lever Inc	106	2.2%
Wb Games Inc.	101	2.1%
Survios, Inc.	100	2.0%
Riot Games, Inc.	91	1.9%	Tencent
Zynga Inc.	84	1.7%	Take-Two
Funcom Inc	79	1.6%	Tencent
2k Games, Inc.	74	1.5%	Take-Two
Complete Networks, Inc.	65	1.3%
Gearbox Software	58	1.2%	Embracer
Digital Extremes Ltd	43	0.9%	Tencent
Naughty Dog, Inc.	43	0.9%	Sony
Mastery Game Studios, LLC	26	0.5%
Crystal Dynamics Inc	25	0.5%	Embracer
Skillz Inc.	25	0.5%
Microsoft Corporation	24	0.5%	Microsoft
Others	887	18.2%
TOTAL	4,885	100.0%

As indicated in the first row, Activision lies at the top in number of job postings in the CareerBuilder data, with 26.0 percent. Prior to the Activision acquisition, Microsoft accounted for 3.1 percent of job postings (the sum of Zenimax Media and Microsoft rows). Based on these figures, Microsoft’s acquisition of Activision significantly increased concentration (by more than 150 points) in an already concentrated market (post-merger HHI above 1,200). This finding implies that the merger could lead to anticompetitive effects in the relevant labor market, including layoffs.

It bears noting that the HHI thresholds established in the 2023 Merger Guidelines (Guideline 1) were most likely developed with product markets in mind. Indeed, the Guidelines recognize in a separate section (Guideline 10) that labor markets are more vulnerable to the exercise of pricing power than output markets: “Labor markets frequently have characteristics that can exacerbate the competitive effects of a merger between competing employers. For example, labor markets often exhibit high switching costs and search frictions due to the process of finding, applying, interviewing for, and acclimating to a new job.” High switching costs are also present in the video game industry: Almost 90 percent of workers at AAA studios in the CareerBuilder Resume data indicate that they did not want to relocate, making them more vulnerable to an exercise of market power than the HHI analysis above implies.

As any student of economics recognizes, a monopsonist not only reduces wages below competitive levels, but also restricts employment relative to the competitive level. So the immediate firing of 1,900 workers is consistent with the exercise of newfound monopsony power. In technical terms, the layoffs could reflect a change in the residual labor supply curve faced by the merged firm.

Why would Microsoft exercise its newfound buying power this way? To begin, many Microsoft workers, prior to the merger, could have switched to Activision in response to a wage cut. Indeed, we were able find in the CareerBuilder data that a substantial fraction of former Microsoft workers left Microsoft Game Studios to work for Activision. (More details on the churn rate to come in our forthcoming paper.) Post-merger, Microsoft was able to internalize this defection, weakening the bargaining position of its employees, and putting downward pressure on wages. In other words, Microsoft is more disposed to cutting Activision jobs than would a standalone Activision. Moreover, by withholding Activision titles from competing multi-game subscription services—the FTC’s primary theory of harm in its litigation, now under appeal—Microsoft can give an artificial boost to its platform division. This input foreclosure strategy would compel Microsoft to downsize its gaming division and thus its gaming division workers.

Alternative Explanations Don’t Ring True

The contention that these 1,900 layoffs flowed from the merger, as opposed to some other force, is supported in the economic literature in other labor markets. A recent paper by Prager and Schmitt (2021) studied the effect of a competition-reducing hospital merger on the wages of hospital staff. Consistent with economic theory, the merger had a substantial negative effect on wages for workers whose skills are much more useful in hospitals than elsewhere (e.g., nurses). In contrast, the merger had no discernable effect on wages for workers whose skills are equally useful in other settings (e.g., custodians). As Hemphill and Rose (2018) explain in their seminal Yale Law Journal article, “A merger of competing buyers can exacerbate the merged firm’s incentive to buy less in order to drive down input prices.”

Microsoft has its defenders in academia. According to Joost van Dreunen, a New York University professor who studies the gaming business, the video game industry is “suffering through a winter right now. If everybody around you is cutting their overhead and you don’t, you’re going to invoke the wrath of your shareholders at some point.” (emphasis added) This point—which sounds like it was fed by Microsoft’s PR firm—is intended to suggest that the firings would have occurred absent the merger. But there are two problems with this narrative. First, Microsoft’s gaming revenues are booming (up nine percent in the first quarter of its 2024 fiscal year), which makes industry comparables challenging. What were the layoffs among video game firms that also grew revenues by nine percent? Second, video programmers and artists are not “overhead,” such as HR workers or accountants. (Apologies to those workers.) Thus, their firing cannot be attributed to some redundancy in deliverables.

Microsoft’s own press statement about the layoffs vaguely states that it has “identified areas of overlap” across Activision and its former gaming unit. But that explanation is just as consistent with the labor-market harm articulated here as with the “eliminating redundancy” efficiency.

Bobby Kotick, the former CEO of Activision, received a $400 million golden parachute at the end of the year for selling his company to Microsoft. That comes to about $210,500 per fired employee, or about two years’ worth of severance for each worker laid off. Too bad those resources were so regressively assigned.