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There is a tension in the discourse as to the purpose of antitrust policy. In one camp, consumer welfare still reigns supreme. In another, there is greater acceptance that the consumer welfare standard is flawed, or at least controversial. Disciples of the first camp argue that antitrust policy should focus exclusively on increasing output as a proxy for consumer welfare.

Looking backwards, some have argued that the SCOTUS antitrust decisions focus almost entirely on output and price, consistent with consumer welfare. But is that how we should appraise what the Court was doing?

This short missive argues that SCOTUS does not articulate that it is applying consumer welfare. Even if it did, it does not tether that policy to notions of Congressional intent behind the antitrust laws. Indeed, where SCOTUS has said it is embracing Congressional intent, its opinion directly contradicts the notions of consumer welfare.

In a recent paper posted to SSRN titled “Antitrust’s Goals in the Federal Courts,” Herb Hovenkamp argues that to understand antitrust’s objective, we should focus on the words of SCOTUS and the federal courts: “Nearly all of this paper consists of statements from the Supreme Court and lower federal courts and concerns how they define and identify the goals of the antitrust laws.” It bears noting that Hovenkamp has been a strong advocate for consumer welfare theory, which would put him in the first camp. As Hovenkamp pointed out in a previous paper, “In sum, courts almost invariably apply a consumer welfare test.” And as Hovenkamp stated in yet another paper, there is good reason for the courts to do so: “it is a reasonable supposition that consumer welfare is maximized by offering consumers the best quality at the lowest price.”  

While others have attempted to insert other policies into consumer welfare—or at least claim it is possible that other policies fit nicely within consumer welfare—the lodestar has always been output. As Hovenkamp professed: “[T]he country is best served by a more-or-less neoclassical antitrust policy with consumer welfare, or output maximization, as its guiding principle.”

Hovenkamp is correct that the courts have used the term consumer welfare. But the push for consumer welfare was not started in the Supreme Court, and the term has not been applied consistently in the way antitrust advocates of the consumer welfare standard might think.

Reading the tea leaves

The first mention of the words “consumer welfare” comes from U.S. v. Dotterweich, a case that sought to interpret the Federal Food, Drug and Cosmetics Act of 1938. The act sought to protect “against abuses of consumer welfare growing out of inadequacies in the Food and Drugs Act of June 30, 1906.”

It is not until 1976, in the Ninth Circuit’s case GTE Sylvania v. Cont’l T.V. Inc., that a court adopted the view that the purpose of antitrust was to protect consumer welfare. “Since the legislative intent underlying the Sherman Act had as its goal the promotion of consumer welfare, we decline blindly to condemn a business practice as illegal per se because it imposes a partial, though perhaps reasonable, limitation on intrabrand competition, when there is a significant possibility that its overall effect is to promote competition between brands.” The Court’s footnote 39 cites to Robert Bork’s 1966 piece. The notion of consumer welfare stayed in the Ninth Circuit for a few years, with Boddicker v. Arizona State Dental Ass’n and Moore v. James H. Matthews & Co.

In 1979, Chief Justice Burger wrote the Supreme Court’s decision in Sonotone. In that case, it appears Burger adopts Bork’s consumer welfare approach. But a careful reading of the full paragraph in which Burger cites Bork leaves that prescription uncertain:

Nothing in the legislative history of § 4 conflicts with our holding today. Many courts and commentators have observed that the respective legislative histories of § 4 of the Clayton Act and § 7 of the Sherman Act, its predecessor, shed no light on Congress’ original understanding of the terms “business or property.”4 Nowhere in the legislative record is specific reference made to the intended scope of those terms. Respondents engage in speculation in arguing that the substitution of the terms “business or property” for the broader language originally proposed by Senator Sherman5 was clearly intended to exclude pecuniary injuries suffered by those who purchase goods and services at retail for personal use. None of the subsequent floor debates reflect any such intent. On the contrary, they suggest that Congress designed the Sherman Act as a “consumer welfare prescription.” R. Bork, The Antitrust Paradox 66 (1978). Certainly, the leading proponents of the legislation perceived the treble-damages remedy of what is now § 4 as a means of protecting consumers from overcharges resulting from price fixing. E.g., 21 Cong.Rec. 2457, 2460, 2558 (1890). [emphasis added]

From there, the lower courts either cited Sonotone, Bork, the Merger Guidelines, or, in one case, Broadcast Music, which did not mention consumer welfare at all.

It was not until Jefferson Parish that the Court again mentions consumer welfare, but only in a concurrence by Justice O’Conner (again citing Broadcast Music). Justice O’Conner wrote: “Dr. Hyde, who competes with the Roux anesthesiologists, and other hospitals in the area, who compete with East Jefferson, may have grounds to complain that the exclusive contract stifles horizontal competition and therefore has an adverse, albeit indirect, impact on consumer welfare even if it is not a tie.” And in the same year, the Court in NCAA v. Board of Oklahoma again quoted Sonotone.

The words appear again in Atl. Richfield Co. v. USA Petroleum Co. in a dissent by Justice Stevens. But here the words are used in contradiction to notions of efficiency. Justice Stevens writes: “The Court, in its haste to excuse illegal behavior in the name of efficiency, has cast aside a century of understanding that our antitrust laws are designed to safeguard more than efficiency and consumer welfare, and that private actions not only compensate the injured, but also deter wrongdoers.” (emphasis added) The line suggests that the purpose of antitrust laws goes beyond short-run welfare maximization.

In his dissent in Eastman Kodak, Justice Scalia accuses the majority of ignoring consumer welfare in application of a per se rule against tying. Similarly, Justice O’Conner, citing consumer welfare, accuses the majority in Edenfield v. Zane of “taking a wrong turn” in areas of speech.

In FCC v. Beach Comm’n Inc., the Court wrestled with an FCC franchising requirement. In explaining its understanding of the purpose of antitrust laws, the Court mentions consumer welfare in a way potentially inconsistent with Bork’s treatment: “Furthermore, small size is only one plausible ownership-related factor contributing to consumer welfare. Subscriber influence is another.” These are not necessarily output- or price-related goals.

In the 1990s, there are two cases in which SCOTUS mentions consumer welfare. In Brooke Group v. Brown & Williamson Tobacco, the Court talks of its precedent, Utah Pie, in terms of how the case has “been criticized on the grounds that such low standards of competitive injury are at odds with the antitrust laws’ traditional concern for consumer welfare and price competition.” It does not, however, explain the meaning of consumer welfare. It merely quotes the usual Chicago School authors as to the point and moves on.

In the 2000s, consumer welfare became more prevalent in SCOTUS discussion, but again without explaining its meaning. Justice Stevens dissents in Granholm v. Heald against the removal of state wine restrictions because of Constitutional concerns. The Court in Weyerhauser notes that without recoupment, predatory pricing improves consumer welfare. Leegin, for all of its careful consideration of overturning Dr. Miles, mentions consumer welfare only three times, once quoting an Amicus brief. In Kirtsaeng, it quotes Hovenkamp in passing for that proposition. In Alston, the Court cautions that judges in implementing a remedy may affect outcomes worse than the market. In a maritime tort case, the dissent warned that overwarning regarding contaminants would injure consumer welfare. In Ohio v. American Express, the Court favorably cites to Leegin for the notion of consumer welfare, but only in passing. In Actavis, too, the dissent points to consumer welfare.

That is the extent of the Supreme Court’s wisdom on consumer welfare. For nearly 100 years, the phrase “consumer welfare” did not appear anywhere in antitrust lore. It did appear elsewhere, a point with which we must contend if the Court knew of term’s existence. Moreover, the Court has inconsistently used the term (within and beyond the antitrust laws), which suggests more haphazard citation than deliberate calculation. Or, perhaps more insidiously, an attempt to alter precedent via seemingly innocent citation leads to its increased usage in antitrust.

Put one shoe on before the other

In contrast to the obscure tea leaves from the aforementioned cases, the Court made a very precise pronouncement as to the purpose of antitrust in 1962. In Brown Shoe v. United States, the Court details the legislative history of the antitrust laws. The Court makes clear it is interpreting legislative history and the will of Congress, not creating its own policy:

In the light of this extensive legislative attention to the measure, and the broad, general language finally selected by Congress for the expression of its will, we think it appropriate to review the history of the amended Act in determining whether the judgment of the court below was consistent with the intent of the legislature.

That legislative history does not detail consumer welfare, and indeed it could not given the passage of the Sherman Act in 1890 and Alfred Marshall’s book, Principles of Economics, published in the same year. Looking backwards—from current understanding and implicitly thrusting that understanding on courts of yesteryear—is a problematic bias of this approach.

The Supreme Court goes on to note other aims of antitrust. It notes a focus on the rising tide of economic concentration. It even mentions some potential defenses, such as two small firms merging or a failing firm:

[A]t the same time that it sought to create an effective tool for preventing all mergers having demonstrable anti-competitive effects, Congress recognized the stimulation to competition that might flow from particular mergers. When concern as to the Act’s breadth was expressed, supporters of the amendments indicated that it would not impede, for example, a merger between two small companies to enable the combination to compete more effectively with larger corporations dominating the relevant market, nor a merger between a corporation which is financially healthy and a failing one which no longer can be a vital competitive factor in the market.

But it fails to mention other goals, including consumer welfare. And it explicitly rejects an efficiencies defense. Indeed, SCOTUS recognized that the goals of antitrust law may contradict expansions of output:

It is competition, not competitors, which the Act protects. But we cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned business. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision.

In other words, prices might be higher and output lower when markets are less concentrated, but that is a price we are willing to pay in exchange for greater democracy and greater freedom from economic tyranny.

Looking backwards yields more heat than light

What all of this suggests is a strong movement and perhaps some misunderstandings by the Court about what consumer welfare means. Hovenkamp is right to be skeptical given, as he points out, SCOTUS does not often use the term. But it’s worse than that.

Where the trouble comes in is when Hovenkamp starts looking for output and price discussions as a proxy for consumer welfare. Here, he finds slightly more support in the tea leaves. But my critique of those considerations, beyond the points that overlap here, will have to wait for another blog post. At the very least, suffice it to say: If we’re using output as a measure of welfare, output holds the same problems as have been repeatedly stated as to consumer welfare. And if output is a not a proxy for consumer welfare, then why are we measuring it again?

Using the lens of our current understanding to assess older cases leads to biases that are more inclined to find the Court’s understanding is consistent with ours. Thorstein Veblen said it best:  For the economist, “[a] gang of Aleutian Islanders slushing about in the wrack and surf with rakes and magical incantation for the capture of shell-fish are held, in point of taxonomic reality, to be engaged in a feat of hedonistic equilibr[ium] …. And that is all there is to it. Indeed, for economic theory of this kind, that is all there is to any economic situation.” 

What we see looking backwards is not necessarily what the Court saw in the moment. And the only time the Court gave explicit meaning to antitrust’s purpose, it recognized that deconcentrating the economy might lead to higher prices and reduced output. More importantly, it recognized other antitrust goals apart those espoused by consumer welfare advocates.

Your intrepid writer, when not toiling for free in the basement of The Sling, does a fair amount of testifying as an expert economic witness. Many of these cases involve alleged price-fixing (or wage-fixing) conspiracies. One would think there would be no need to define the relevant market in such cases, as the law condemns price-fixing under the per se standard. But because of certain legal niceties—such as whether the scheme involved an intermediary (or ringleader) that allegedly coached and coaxed the parties with price-setting power—we often spend reams of paper and hundreds of billable hours engaging in what amounts to navel inspection to determine the contours of the relevant market. The idea is that if the defendants do not collectively possess market power in a relevant antitrust market, then the challenged conduct cannot possibly generate anticompetitive effects.

A traditional method of defining the relevant market asks the following question: Could a hypothetical monopolist who controlled the supply of the good (or services) that allegedly comprise the relevant market profitably raise prices over competitive levels? The test has been shortened to the hypothetical monopolist test (HMT). 

It bears noting that there are other ways to define relevant markets, including by assessing the Brown Shoe factors or practical indicia of the market boundaries. The Brown Shoe test can be used independently or in conjunction with the HMT. But this alternative is beyond the scope of this essay.

Published in the Harvard Law Review in 2010, Louis Kaplow’s essay was provocatively titled “Why (Ever) Define Markets”? It’s a great question, and having spent 25-odd years in the antitrust business, I can provide a smart-alecky and jaded answer: The market definition exercise is a way for defendants to deflect attention away from the harms inflicted on consumers (or workers) and towards an academic exercise, which is admittedly entertaining for antitrust nerds. Don’t look at the body on the ground, with goo spewing out of the victim’s forehead. Focus instead on this shiny object over here!

And it works. The HMT commands undue influence in antitrust cases, with some courts employing the market-definition exercise as a make-or-break evidentiary criterion for plaintiffs, before considering anticompetitive effects. Other classic examples of market definition serving as a distraction include American Express (2018), where the Supreme Court even acknowledged evidence a net price increase yet got hung up over market definition, or Sabre/Farelogic (2020), where the court acknowledged that the merging parties competed in practice but not per the theory of two-sided markets.

A better way forward

When it comes to retrospective monopolization cases (aka “conduct” cases), there is a more probative question to be answered. Rather than focusing on hypotheticals, courts should be asking whether a not-so-hypothetical monopolist—or collection of defendants that could mimic monopoly behavior—could profitably raise price above competitive levels by virtue of the scheme. Or in a monopsony case, did the not-so-hypothetical monopsonist—or collection of defendants assembled here—profitably reduce wages below competitive levels by virtue of the scheme? Let’s call this alternative the NSHMT, as we can’t compete against the HMT without our own clever acronym.

Consider this fact pattern. A ringleader, who gathered and then shared competitively sensitive information from horizontal rivals, has been accused of orchestrating a scheme to raise prices in a given industry. After years of engaging in the scheme, an antitrust authority began investigating, and the ring was disbanded. On behalf of plaintiffs, an economist builds an econometric model that links the prices paid to the customers at issue—typically a dummy variable equal to one when the defendant was part of the scheme and zero otherwise—plus a host of control variables that also explain movements in prices. After controlling for many relevant (i.e., motivated by record evidence or economic theory) and measurable confounding factors, eliminating any variables that might serve as mediators of the scheme itself, the econometric model shows that the scheme had an economically and statistically significantly effect of artificially raising prices.

Setting aside any quibbles that defendants’ economists might have with the model—it is their job to quibble over modeling choices while accepting that the challenged conduct occurred—the clear inference is that this collection of defendants was in fact able to raise prices while coordinating their affairs through the scheme. Importantly, they could not have achieved such an outcome of inflated prices unless they collectively possessed selling power. (Indeed, why would defendants engage in the scheme in the first place, risking antitrust liability, if higher profits could not be achieved?) So, if we are trying to assemble the smallest collection of products such that a (not-so) hypothetical seller of such products could exercise selling power, we have our answer! The NSHMT is satisfied, which should end the inquiry over market power.

(Note that fringe firms in the same industry might weakly impose some discipline on the collection of firms in the hypothetical. But the fringe firms were apparently not needed to exercise power. Hence, defining the market slightly more broadly to include the fringe is a conservative adjustment.)

At this point, the marginal utility of performing a formal HMT to define the relevant market based on what some hypothetical monopolist could pull off is dubious. I use the modifier “formal” to connote a quantitative test as to whether a hypothetical monopolist who controlled the purported relevant market could increase prices by (say) five percent above competitive levels.

The formal HMT has a few variants, but a standard formulation proceeds as follows. Step 1: Measure the actual elasticity of demand faced by defendants. Step 2: Estimate the critical elasticity of demand, which is the elasticity that would make the hypothetical monopolist just indifferent between raising and not raising prices. Step 3: Compare the actual to the critical elasticity; if the former is less than the latter, then the HMT is satisfied and you have yourself a relevant antitrust market! An analogous test compares the “predicted loss” to the “critical loss” of a hypothetical monopolist.

For those thinking the New Brandeisians dispensed with such formalism in the newly issued 2023 Merger Guidelines, I refer you to Section 4.3.C, which spells out the formal HMT in “Evidence and Tools for Carrying Out the Hypothetical Monopoly Test.” To their credit, however, the drafters of the new guidelines relegated the formal HMT to the fourth of four types of tools that can be used to assess market power. See Preamble to 4.3 at pages 40 to 41, placing the formal HMT beneath (1) direct evidence of competition between the merging parties, (2) direct evidence of the exercise of market power, and (3) the Brown Shoe factors. It bears noting that the Merger Guidelines were designed with assessing the competitive effects of a merger, which is necessarily a prospective endeavor. In these matters, the formal HMT arguably can play a bigger role.

Aside from generating lots of billable hours for economic consultants, the formal HMT in retrospective conduct cases bears little fruit because the test is often hard to implement and because the test is contaminated by the scheme itself. Regarding implementation, estimating demand elasticities—typically via a regression on units sold—is challenging because the key independent variable (price) in the regression is endogenous, which when not correctly may lead to biased estimates, and therefore requires the economist to identify instrumental variables that can stand in the shoes of prices. Fighting over the proper instruments in a potentially irrelevant thought experiment is the opposite of efficiency! Regarding the contamination of the formal test, we are all familiar with the Cellophane fallacy, which teaches that at elevated prices (owing to the anticompetitive scheme), distant substitutes will appear closer to the services in question, leading to inflated estimates of the actual elasticity of demand. Moreover, the formal HMT is a mechanical exercise that may not apply to all industries, particularly those that do not hold short-term profit maximization as their objective function.

The really interesting question is, What happens if the NSHMT finds an anticompetitive effect owing to the scheme—and hence an inference of market power—but the formal HMT finds a broader market is needed? Clearly the formal HMT would be wrong in that instance for any (or all) of the myriad reasons provided above, and it should be given zero weight by the factfinder.

A special form of direct proof

An astute reader might recognize the NSHMT as a type of direct proof of market power, which has been recognized as superior to indirect proof of market power—that is, showing high shares and entry barriers in a relevant market. As explained by Carl Shapiro, former Deputy Assistant Attorney General for Economics at DOJ: “IO economists know that the actual economic effects of a practice do not turn on where one draws market boundaries. I have been involved in many antitrust cases where a great deal of time was spent debating arcane details of market definition, distracting from the real economic issues in the case. I shudder to think about how much brain damage among antitrust lawyers and economists has been caused by arguing over market definition.” Aaron S. Edlin and Daniel L. Rubinfeld offered this endorsement of direct proof: “Market definition is only a traditional means to the end of determining whether power over price exists. Power over price is what matters . . . if power can be shown directly, there is no need for market definition: the value of market definition is in cases where power cannot be shown directly and must be inferred from sufficiently high market share in a relevant market.” More recently, John Newman, former Deputy Director of the Bureau of Competition at the FTC, remarked on Twitter: “Could a company that doesn’t exist impose a price increase that doesn’t exist of some undetermined amount—probably an arbitrarily selected percentage—above a price level that probably doesn’t exist and may have never existed? In my more cynical moments, I occasionally wonder if this question is the right one to be asking in conduct cases.”

I certainly agree with these antitrust titans that direct proof of power is superior to indirect proof. Let me humbly suggest that the NSHMT is distinct from and superior to common forms of direct proof. Common forms of direct proof include evidence that the defendant commands a pricing premium over its peers (or imposes a large markup), as determined by some competitive benchmark (or measure of incremental costs), or engages in price discrimination, which is only possible if it faces a downward-sloping demand curve. The NSHMT is distinct from these common forms of direct evidence because it is tethered to the challenged conduct. It is superior to these other forms because it addresses the profitability of an actual price increase owing to the scheme as opposed to levels of arguably inflated prices. Put differently, it is one thing to observe that a defendant is gouging customers or exploiting its workers. It is quite another to connect this exploitation to the scheme itself.  

Regarding policy implications, when the NSMHT is satisfied, there should be no need to show market power indirectly via the market-definition exercise. To the extent that market definition is still required, when there is a clear case of the scheme causing inflated prices or lower output or exclusion in monopolization cases, plaintiffs should get a presumption that defendants possess market power in a relevant market. 

In summary, for merger cases, where the analysis focuses on a prospective exercise of power, the HMT might play a more useful role. In merger cases, we are trying to predict the profitability of some future price increase. Even in merger cases, the economist might be able to exploit price increases (or wage suppression) owing to prior acquisitions, which would be a form of direct proof. For conduct cases, however, the NSHMT is superior to the HMT, which offers little marginal utility for the factfinder. The NSHMT just so happens to inform the profitability of an actual price hike by a collection of actual firms that wield monopoly power, as opposed to some hypothetical monopolist. And it also helpfully focuses attention on the anticompetitive harm, where it rightly belongs. Look at the body on the ground and not at the shiny object.  

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 13th 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:

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…

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:

  1. The merger will have impacts across multiple types of financial products. The two biggest are credit card issuing and credit card payment processing.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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:

  1. The Story Behind Biden’s Trade Failure: Emails show how Lina Khan and the left co-opted Katherine Tai.
  2. Brain Death at the FTC and FCC: Net neutrality and Amazon show why Congress needs to kill agencies as well as creating new ones.
  3. Lina Khan Has a Weak Case Against Amazon: The FTC Chair defines monopoly down to harpoon the giant retailer with an antitrust suit.
  4. The Hedge Fund That Made a Killing Betting Against Lina Khan: Pentwater Capital predicted that FTC attempts to block big deals would fail
  5. Lina Khan Needs to See ‘Shark Tank’: Kevin O’Leary would never invest in a business that had to face conditions of ‘perfect competition.’
  6. Lina Khan Whiffs Again
  7. Antitrust Gone Wild Against Amgen: No theory is too strange for Lina Khan’s FTC to block a merger.
  8. Biden FTC’s Antitrust Bark Proves Worse Than Its Bite: FTC settlement with Amgen will pave way for more healthcare deal making
  9. Lina Khan Chalks Up Another Defeat: A federal judge tosses the FTC’s Meta suit as lacking enough evidence.
  10. The FTC Can’t See the Future: The agency litigates videogame consoles, which will be irrelevant in 10 years.
  11. Lina Khan and the FTC Go Back to the Antitrust Future: Biden’s reactionary trustbuster seeks to resurrect precedents that were out of date 40 years ago.
  12. Lina Khan’s Gift to Netflix; Blocking the Amazon-MGM deal would help the streaming giants.
  13. The FTC’s Grocery Gift to Walmart and Amazon:  Chair Lina Khan won’t let Kroger and Albertsons merge to become more competitive.
  14. Walmart Takes On Lina Khan: A dubious FTC lawsuit tees up the agency for a constitutional challenge.
  15. The FTC Is Working With the EU to Hamstring U.S. Companies: Chair Lina Khan wants foreign help to impose her agenda that Congress wouldn’t pass.
  16. Lina Khan’s Non-Compete Favor to Big Labor
  17. Lina Khan Blocks Cancer Cures: Illumina’s acquisition of Grail would save lives, and it’s crazy for the FTC to call it a monopoly.
  18. The FTC’s Unholy Antitrust Grail:  The agency overrules its own law judge to block Illumina’s acquisition.
  19. One ‘Monopoly’ That Could Save Your Life: Will Lina Khan’s FTC block widespread early detection of pancreatic cancer?
  20. Lina Khan’s Merger Myopia Has Deadly Consequences: Will a new cancer screening test become widely available?
  21. Lina Khan’s Power Grab at the FTC: The new Chair snatches unilateral authority and rescinds bipartisan Obama-era standards.
  22. Lina Khan Is Icarus at the FTC
  23. The FTC Heads for Legal Trouble: Its aggressive rule-making will create opportunities for judges to rein in the commission’s authority.
  24. Business Group Challenges Lina Khan’s Agenda at Federal Trade Commission
  25. The Chamber of Commerce Will Fight The FTC
  26. Why I’m Resigning as an FTC Commissioner: Lina Khan’s disregard for the rule of law and due process make it impossible for me to continue serving.
  27. The Many Abuses of Lina Khan’s FTC: Christine Wilson’s resignation highlights the agency’s bad turn.
  28. Lina Khan’s Trumpian Precedent
  29. Lina Khan Sees Turbulent Start as Head of Federal Trade Commission: Criticized by Republicans, Khan tells agency staffers she aims to build bridges going forward
  30. Progressives Attack Their Own at the FTC
  31. Antitrust Attacks on Private Equity Hurt Consumers
  32. Private Equity Blasts Antitrust Agencies’ Efforts to Slow Mergers
  33. T-Mobile Proves That Mergers Can Benefit Consumers: That should give pause to today’s overzealous antitrust enforcers.
  34. Between a Rock and Lina Khan’s FTC
  35. Amazon Seeks Recusal of FTC Chairwoman Lina Khan in Antitrust Investigations of Company
  36. Lina Khan Once Went Big Against Amazon. As FTC Chair, She Changed Tack.
  37. Facebook Seeks FTC Chair Lina Khan’s Recusal in Antitrust Case
  38. Lina Khan Has a Meta Fixation
  39. Lina Khan’s Recusal Coverup
  40. Josh Hawley, Meet Lina Khan
  41. Josh Hawley Loves Lina Khan
  42. Congress Can Investigate Lina Khan
  43. Lina Khan’s Artificial Intelligence: Fresh off its latest legal defeat, the FTC moves to regulate ChatGPT.
  44. Lina Khan Is Taking on the World’s Biggest Tech Companies—and Losing
  45. Why the FTC’s Lina Khan Is Taking on Big Tech, Even if It Means Losing
  46. Antitrust Regulation by Intimidation
  47. Lina Khan Wins as Illumina’s CEO Resigns
  48. The Harassment of Elon Musk
  49. If Lina Khan Had Been Around When the Typewriter Was Invented
  50. Car Shopping Ain’t Broke, So the FTC Will Fix It
  51. How Corporate America Became a Political Orphan
  52. Wall Street Deal Making Faces Greater Scrutiny, Delays Under FTC’s Lina Khan
  53. The Return of the Trustbusters
  54. Forget AI: The Administrative State Is a Bad Algorithm: Microsoft trustbusters and EPA regulators show chatbots aren’t the only ones who ‘hallucinate.’
  55. How Biden Can Get Antitrust Right: New draft competition guidelines released last week need revision. Not all mergers are bad.
  56. Let a Biden Reappraisal Include Antitrust: If any good comes from the administration’s debacles, our oldest president will put aside childish things.
  57. The New Progressives Fight Against Consumer Welfare
  58. Lina Khan and Amy Klobuchar’s Microsoft Temptation

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.

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