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Economic Analysis and Competition Policy Research

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

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

Subprime Borrowers Are Likely to Be Injured

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

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

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

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

Be Skeptical of Purported Benefits to Merchants

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

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

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

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

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

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

Be Skeptical of Purported Benefits to Cardholders

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

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

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

Be Skeptical of Other Purported Merger Benefits

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

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

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

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

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

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

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

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

The Merger Is Likely Anticompetitive On Net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Articles Used for This Summary:

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

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

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

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

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

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

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

This Antitrust Dimension of Hospital Deserts in Rural America

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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

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

Harms to Labor

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

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

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

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

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

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

Harms to Steel Buyers

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

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

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

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

Balancing Security Concerns Against Competition Harms

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

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

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

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

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

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

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

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

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

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

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

Problem 3: Favoring Well-Endowed Schools

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

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

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

Problem 4: The Problem of Potential Retaliation

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

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

Problem 5: Lack of Competition in Rankings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Alternative Explanations Don’t Ring True

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

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

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

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

Larry Summers and other corporate apologists asserted for over a year that the Federal Reserve would have to engineer a recession to bring down prices. But as inflation continues to fall with no corresponding rise in unemployment, doomsayers’ insistence on the need to throw millions of people out of work to restore price stability has been discredited. Although the United States is on track to achieve a soft landing once thought improbable, don’t give Fed Chair Jerome Powell credit; disinflation without mass joblessness is happening despite his move to jack up interest rates, not because of it. And while the Fed is expected to begin lowering interest rates later this year, Powell should still be regarded as a hazard to the health of our polity and our planet.

Just a few weeks ago, Powell told security to “close the fucking door” on a group of climate campaigners who interrupted a speech he was giving. Powell’s palpable contempt for the protesters was another reminder that President Joe Biden should never have renominated the former private equity executive to lead the Fed. The magnitude of Biden’s mistake has become increasingly clear in the roughly two years since he made it.

Put bluntly, Powell is doing a bang-up job of hastening the end of civilized life on Earth. First, his refusal to use the U.S. central bank’s regulatory authority to rein in the financing of fossil fuels is locking in more destructive warming. Second, his prolonged campaign of interest rate hikes is hindering the greening of the economy at a pivotal moment when there is no time to waste. Last but not least, the high interest rate environment Powell has created is improving Donald Trump’s 2024 electoral prospects—and given Trump’s coziness with the fossil fuel industry, his election would be a death knell for the climate.

Nevertheless, we have yet to hear a mea culpa from prominent Powell cheerleaders, who argued that the Fed Chair’s pre-2022 dovishness outweighed his regulatory deficiencies. What has become painfully clear is that Powell’s actual hawkishness is undermining the investment incentives of Biden’s green economic agenda.

Biden tapped Powell for a second four-year term despite opposition from public interest groups, including Public Citizen and the Revolving Door Project, where my colleague Max Moran identified several better candidates. The recent anniversary of Powell’s renomination should invite critical reflection on the arguments made by his supporters and detractors alike during the drawn-out battle to staff Biden’s Fed. Struggles to reshape financial regulation will only grow more fierce in the coming years, and the left needs to be prepared to fight for central bank leaders who are committed to advancing whole-of-government responses to the intertwined climate and inequality crises.

What were people thinking? Reassessing the cases for and against Powell

As evidence mounts that rate hikes imposed by Powell (and many of his central banking peers abroad) are making global climate apartheid more likely, it’s worth revisiting why many establishment liberals and even some progressives advocated on his behalf in the summer and fall of 2021—and why others on the left sounded the alarm.

According to Powell’s defenders at the time, the Fed Chair’s response to the Covid crisis demonstrated that he would strive, unlike his predecessors, to fulfill both parts of the institution’s dual mandate: maintaining low inflation and pursuing full employment. Furthermore, they insisted, Powell’s GOP affiliation would allow him to do so while retaining the support of congressional Republicans, the corporate media, and Wall Street.

Powell’s opponents welcomed the chair’s dovish approach to monetary policy from 2018 to 2021, though they simultaneously acknowledged his history of changing positions based on political whims. They remained unconvinced, however, that Powell was the only candidate who would give maximizing employment equal priority as keeping inflation below the Fed’s arbitrary and untenable 2 percent target. Lael Brainard, then the only Democratic member of the Federal Reserve Board of Governors, could be expected to do that and perform better at other, equally important aspects of the job, they argued, regardless of whether right-wing lawmakers backed her.

Obviously, the notion that Powell’s purported commitment to full employment would lead the Fed to keep interest rates low was quickly brought into disrepute. Just one week after Biden renominated him, the Fed chair had already changed his tune. And in early 2022, Powell launched the most drastic and sustained campaign of rate hikes in decades, earning comparisons to Paul Volcker.

But Powell’s critics, especially those concerned with climate justice, didn’t need the benefit of hindsight to see that the incumbent was a problematic pick. They had already argued convincingly that Powell’s weaknesses on financial regulation should be disqualifying. The passage of time has revealed how wrong Powell’s supporters were to dismiss progressives’ warnings about Powell’s ethical failures as well as his penchant for deregulation, which reared its ugly head with the 2023 collapse of Silicon Valley Bank and Signature Bank.

Robinson Meyer, the founder of climate media outlet Heatmap and contributor to the New York Times, was an early Powell supporter. His piece, titled “The Planet Needs Jerome Powell,” is an emblematic pro-Powell article published by The Atlantic in September 2021, amid the lengthy fight over Biden’s pick for Fed chair. Meyer admonished the climate left for its supposed lack of seriousness about the Fed’s role in macroeconomic management. According to Meyer’s narrow interpretation (shared by neoliberal blogger Matt Yglesias), the Federal Reserve as an institution is basically reducible to monetary policy and has little of consequence to do with financial regulation.

The demand from “regulation hawks” for a central bank leader who would ramp up Wall Street oversight was misguided, Meyer suggested, because the Fed’s actions on this front “won’t directly reduce carbon pollution.” “Employment hawks,” on the other hand, were right to focus on Powell’s dovishness, he added, because keeping interest rates low to spur green investment is the best a central banker can do on climate. It’s a sad irony that the Fed’s ensuing imposition of rate hikes has undermined the decarbonization effort that Meyer said Powell was best suited to oversee (more on that later).

Contra Meyer, financial regulation is a key aspect of the Fed’s work. If the central bank were to earnestly address the climate emergency’s threats to the financial system (and financiers’ threats to the climate), it would lead banks and other lenders to cease new investment in fossil fuels, an increasingly risky asset class that is not only highly destructive but also likely to become stranded. The continued financing of greenhouse gas emissions makes predatory subprime lending look tame by comparison.

Powell has refused to curb lending to planet-wrecking fossil fuels

Future historians will be at pains to explain why the world’s 60 largest private banks provided more than $5.5 trillion in financing to the fossil fuel industry from 2016 to 2022, including over $1.5 trillion after 2021—the year the International Energy Agency declared that investments in new coal, oil, and gas production are incompatible with its net-zero by 2050 pathway.

Those historians might also ask why regulators allowed Wall Street to pour vast sums of money into ecologically destabilizing and soon-to-be-outdated infrastructure during this crucial decade. At a time when transformative interventions are necessary, the Treasury Department has opted to release voluntary principles for net-zero financing and investment, while the Securities and Exchange Commission is finalizing rules that would require companies to report some of their greenhouse gas emissions and make other climate-related disclosures. Meanwhile, all the Fed has done so far is bail out fossil fuel companies at the beginning of the Covid pandemic and publish—alongside the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency—weak guidance for climate risk management at big banks.

As watchdogs observed earlier this year, the Fed’s proposals are “much vaguer than the detailed expectations laid out by global peers.” This is unconscionable, especially because Powell and other top U.S. regulators have already been empowered by Congress to rein in reckless lending by “too-big-to-fail” or systemically important financial institutions.

Specifically, Section 121 of the Dodd-Frank Act instructs the Federal Reserve to determine whether a bank holding company or nonbank SIFI poses a “grave threat to the financial stability of the United States.” With the approval of the Financial Stability Oversight Council (FSOC), the Fed “can take a host of actions, including imposing limitations on an institution’s activities, prohibiting activities, or forcing asset divestiture,” Graham Steele, former Assistant Secretary for Financial Institutions at the Treasury Department, explained in a landmark 2020 report published before he joined the Biden administration. “While this authority contains some built-in procedural complexity, a Federal Reserve determined to mitigate climate risks should use it to force the largest, most systemic bank holding companies, insurers, and asset managers to divest of their climate change-causing assets.”

The Fed not only has the authority to minimize climate-related financial risks, but doing so falls squarely within its core responsibilities, regardless of Powell’s insistence to the contrary. The Fed is tasked with macroprudential regulation (i.e., managing systemic financial risks), and the existential threat of climate change by definition endangers economic stability. To ignore it is a clear dereliction of duty.

It’s not hard to imagine the outsized positive impact that a progressive leader of the Fed could have on shutting down planned increases in fossil fuel combustion. Consider, for instance, that just four U.S.-based financial giants—JP Morgan Chase, Citi, Wells Fargo, and Bank of America, all of which are SIFIs—account for roughly one-quarter of the aforementioned lending to coal, oil, and gas firms, much of which is bound to end up as stranded assets.

The Fed Chair has not only failed to halt fossil fuel expansion, but also has simultaneously inhibited the buildout of a more sustainable economy by embarking on an unwarranted campaign of interest rate hikes. Powell’s alleged dovishness turned out to be remarkably shallow, and it remains true that better Fed Chair candidates dismissed by Meyer and ignored by Biden were more dedicated to the Fed’s full employment mandate.

Powell has imposed transition-impeding interest rate hikes

Since the start of 2022, Powell has raised the federal funds rate from 0.08% to 5.33%, increasing the costs of borrowing enough to stymie the green economic transition while doing little to alleviate inflation (the professed reason for the rate hikes).

It has become ever more apparent over time that rising interest rates are hampering efforts to decarbonize energy supplies and electrify transportation, housing, and other key sectors. High interest rates have had the dual effect of rolling back productive investment and lowering consumer demand, causing substantial drops in the stocks of major solar, wind, and other renewables-based companies; undermining the deployment of offshore wind projects; delaying the construction of electric vehicle (EV) factories; and slowing the installation of heat pumps.

In effect, Powell is exercising veto power over the Inflation Reduction Act and ruining “the economics of clean energy,” as David Dayen explained recently in The Prospect. President Biden’s signature climate legislation contains hundreds of billions of dollars in subsidies for green industrialization, but repeated interest rate hikes have driven up financing costs enough to outweigh them. As Dayen noted, this is especially the case because the law’s reliance on tax credits requires upfront investment decisions.

It’s worth stressing here that while inflation has declined significantly since its June 2022 peak, Powell’s crusade had little to do with it. The Fed Chair made clear that his goal with interest rate hikes was to “get wages down” (and thus suppress demand) by ramping up unemployment. Fortunately, inflation diminished even in the absence of an uptick in joblessness. The upshot is that while Powell surely wants credit for taming inflation without provoking a recession, he doesn’t deserve it. His chief accomplishment has been to unnecessarily stifle the nascent shift to a greener economy, an ominous development with negative ramifications.

Powell is boosting Trump’s electoral chances

Powell—a lifelong Republican and former private equity bigwig—isn’t just thwarting the green economic transition right now. His obdurate leadership of the U.S. central bank is increasing the costs of housing, automobiles, financed consumer durables, and credit card debt—contributing to widespread anger about the state of the economy even as “Bidenomics” delivers low unemployment and much-needed wage compression. Economic discontent is helping Donald Trump’s 2024 election chances and thus hurting humanity’s long-term prospects for averting the worst consequences of the climate crisis.

It’s a cruel irony that Powell’s interest rate hikes have inflicted real-world harms while being incapable of addressing their purported target: inflation. That’s because the cost-of-living crisis of the past two years didn’t result from a wage-price spiral, as promised by Larry Summers; it was fueled by sellers’ inflation, or corporate profiteering, and exacerbated by the elimination of the pandemic-era welfare state. When the onset of Covid and Russia’s invasion of Ukraine upended international supply chains—rendered fragile through decades of neoliberal globalization—corporations bolstered by preceding rounds of consolidation capitalized on both crises to justify price hikes that outpaced the increased costs of doing business. That safety-net measures enacted in the wake of the coronavirus crisis were allowed to expire only made the situation worse.

Given that the inflation saga of the past two years is inseparable from preexisting patterns of market concentration, progressives have argued against job-threatening rate hikes (note that jacking up unemployment is the only mechanism through which the Fed could lower inflation; for more, see my colleague’s deep dive on the matter) and for a more relevant mix of policies, including a windfall profits tax, stronger antitrust enforcement, and temporary price controls. Unlike the blunt instrument that Powell has been wielding ineffectively, those tailored solutions—the last two of which are within the Biden administration’s ambit—have the potential to dilute the power of price-gouging corporations without hurting workers.

Although inflation is easing, prices remain elevated compared with people’s historic expectations, and rising rents and debts continue to overwhelm households. Biden needs to use his bully pulpit to advocate for a government crackdown on corporate villains. The outcome of the next election—and the fate of U.S. democracy and the planet writ large—depend on it.

Tight monetary policy is making Trump’s return more likely. That makes Biden’s decision to renominate a Trump appointee whose main priority (to allegedly attack profit-driven inflation with the ill-equipped tool of interest rate hikes) conflicts so sharply with the White House’s own stated industrial policy goals (to spur investment in green technologies) all the more nonsensical.

Biden already has to contend with obstructionism from congressional Republicans (and a handful of corporate Democrats) as well as the Supreme Court’s far-right majority. Now, thanks to his own unforced error, the president has to deal with obstructionism from his hand-picked Fed leader—a former partner at the Carlyle Group, one of the world’s most notorious union-busting and fossil fuel-investing private equity firms.

Moving Forward

It bears repeating that careful observers of the Fed are right to worry about climate change—and to stress the agency’s rulemaking authorities and obligations—because nothing else poses a greater threat to economic well-being. What the planet needs more than anything is for Powell to start taking his entire job seriously.

Powell’s inaction is hardly surprising given his January 2023 declaration that the Fed is not and never will be a “climate policymaker.” But Powell’s assertion could not be more wrongheaded; central bankers around the world are key climate policymakers whether or not they identify as such. The United Nations warned ahead of COP28 that the world is currently on pace for a “hellish” 3°C (or about 5.4° Fahrenheit) of warming by 2100. Do Powell and his colleagues seriously think that such a calamity wouldn’t imperil macroeconomic performance?

Frankly, millions of people’s lives and billions of dollars of property are already being destroyed by an ostensibly “safe” amount of climate change (the world is roughly 1.3°C warmer now compared with preindustrial averages). More than doubling extant temperature rise by century’s end would unleash increasingly frequent and severe extreme weather disasters, inflict trillions of dollars in monetary damages, and cause incalculable amounts of pain, including significant losses of lives, livelihoods, cultural artifacts, and biodiversity. A world beset by intensifying heatwaves, droughts, wildfires, storms, and floods will be a world full of ruined cities, factories, and farms. It will also be a far more expensive place to live.

Despite Powell’s apparently steadfast commitment to maintaining price stability, he is actively undermining the possibility of steady prices in the long-run. Again, this isn’t for a lack of tools. It’s for a lack of political willpower. While some of the Fed’s foreign counterparts are currently exploring or implementing mandatory disclosure rules, more stringent climate stress tests of banks’ assets, and direct investment or lending policies that prioritize green enterprises, the U.S. is falling further behind.

Powell should have listened to those activists he dismissed recently because they are right—it’s past time for the Fed to protect the climate from the havoc wreaked by the financial system and vice versa. If Powell won’t do everything in his power to restrain fossil fuel financing and incentivize green investment, then Biden should explore whether he can fire him for cause and appoint someone who will.

Kenny Stancil is a Senior Researcher at the Revolving Door Project.

Last week, the Consumer Financial Protection Bureau and the Biden White House proposed to limit prices on overdraft protection by banks. This is smart policy and is backed by sound economics.

While inflation ran hot in 2022 and 2023, talk of price controls bubbled to the surface, even in economic circles. University of Massachusetts economist Isabella Weber pointed out that price controls were used successfully during World War II, and deployed effectively by Germany more recently to handle spiraling natural gas prices. Health policy professors interviewed last week by the New York Times noted that other countries, including Canada and France, use price controls to limit inflation in pharmaceuticals. Just a few years ago, price controls were a dirty word in economics—the only imaginable exception being for natural monopolies, where a price cap was set in a way to permit a normal rate of return.

Given the shifting attitudes towards price controls, the CFPB’s overdraft-fee proposal is likely to receive a friendlier reception among economists. The financial watchdog estimates that banks collect about $9 billion annually in overdraft fees, and customers who pay overdraft fees pay about $150 on average every year. Overdraft fees averaged $35 per event in recent years, and a bank can assess multiple fees for one overcharge episode whenever multiple checks bounce due to the overdraft. Moreover, banks engage in practices that induce overdrafts (or greater fees), such as refusing to deposit a check without a ten-day hold or engaging in “high-to-low reordering” (processing a large debit before smaller transactions, even if the latter are posted earlier).

The CFPB’s proposed rule would require banks to justify their overdraft fees on the basis of the bank’s incremental costs; if the banks could not do so, then the fee would be regulated at some price between $3 and $14. The rule would apply to large banks only, which some commentators have pointed out misses some of the worst offenders.

Vulnerable Aftermarkets

Economists recognize that market forces are especially weak when it comes to disciplining the price of ancillary or aftermarket services. The classic teaching example is movie theater popcorn. Customers do not have the price of popcorn on the top of their minds when choosing among theaters; the movie choice and the drive time are paramount. And when they arrive at a theater, customers are not likely to reverse their ticket transaction and find a new theater in response to sky-high popcorn prices; the switching costs would be too steep. The same is true for the price of other common aftermarket services, such as movie rental in hotels and printer cartridges.

Overdraft protection can be understood as an ancillary service to standard checking account services. As one economist at the Federal Reserve put it, “Most bank fees represent an example of add-on or aftermarket fees. Aftermarkets can be found in many industries such as printers (for toner), computers (software), razors (blades) and many others.” When someone is shopping around for where to set up their checking account, they will primarily consider the bank’s reputation and geographic footprint, the proximity of a physical office to their home, and the interest rate offered on savings. Overdraft protection likely is not top of mind, and even if it were, the bank won’t prominently display its overdraft fee on its webpage. Economists have learned through experiments that sending repeat messages to customers with a propensity to incur an overdraft fee was effective, consistent with customers having limited attention.

Indeed, I learned of Bank of America’s overdraft fee ($10) only by invoking the help tab on its website, and then looking through several documents that contained the term “overdraft.” The fee is buried in a document titled “Personal Schedule of Fees.” Given the high costs of switching banks, when a customer is hit with an exorbitant overdraft fee, there is little chance the customer will terminate the relationship—that is, the traditional forces that discipline supracompetitive prices are absent.

The American Bankers Association (ABA) rushed out a statement in opposition to the CFPB proposal, claiming that overdraft fee caps “would make it significantly harder for banks to offer overdraft protection to customers.” (This would only be true if the cap were set below the incremental cost of providing the service.) In support of its opposition, the ABA cited a Morning Consult survey, showing that 88 percent of respondents “find their bank’s overdraft protection valuable,” and 77 percent who have paid an overdraft fee in the past year “were glad their bank covered their overdraft payment, rather than returning or declining payment.”

There’s no doubt bank customers value overdraft protection and detest the notion of bouncing checks to multiple vendors. The relevant economic question, however, is whether market forces can be counted on to price overdraft protection at competitive levels (i.e., near marginal costs). So this survey was a bit of misdirection.

A relevant survey, by contrast, would ask bank customers whether they considered a bank’s overdraft fee when choosing with which company to bank, and whether they would consider switching banks upon learning of the bank’s high overdraft fee. If the answer to either of those questions is no, then bank customers are vulnerable to excessive pricing on overdraft protection.

Who Bears The Burden Matters

The typical customer who bears the burden of excessive overdraft fees is low-income, which means a policy of tolerating overcharges here is highly regressive. Consumer Reports notes that eight percent of bank customers, mostly lower-income, account for nearly three quarters of revenues from overdraft fees. According to a CFPB survey released in December 2023, among households that frequently incurred overdraft fees, 81 percent reported difficulty paying a bill at least once in the past year, another indication of poverty. The CFPB survey also notes that “[w]hile just 10% of households with over $175,000 in income were charged an overdraft or an NSF fee in the previous year, the share is three times higher (34%) among households making less than $65,000.”

When deciding whether to impose price controls of the kind contemplated in the CFPB proposal, the economic straights of the typical overdraft fee payor is important. Economists recognize that customers is aftermarkets are generally vulnerable to high prices, but do not counsel an intervention in each of these markets. A middle-class family that overpays for popcorn at a movie theater does not engender much sympathy; if the price is too high, then can abstain without much consequence. Similarly, learning that an upper-class family overpaid for in-room dining at a boutique hotel similarly does not tug at the heartstrings. But a low-income family that pays a $35 overdraft fee could be missing out on other important things like meals, and is in no position to refuse the service; refusing to comply might jeopardize their credit or banking relationship.

The Element of Surprise

In addition to the weak market forces disciplining the price of aftermarket services, bank customers are particularly vulnerable to exploitation given their lack of knowledge about the fees. The same CFPB survey mentioned above showed that, among those who paid an overdraft fee, only 22 percent of households expected their most recent overdraft fee—that is, for many customers (almost half), the overdraft fee came as a surprise. In discussing the fairness of surprise fees, Nobel prize winner Angus Deaton notes in his new book, Economics in America, that “If you need an ambulance, you are not in the best position to find the best service or to bargain over prices; instead you are helpless and the perfect victim for a predator.” Neoliberal economists might ignore these teachings, and instead trust the market to deliver competitive prices for ambulance services and overdraft fees. But anyone with a modicum of understanding of power imbalances and information asymmetries will quickly recognize that an intervention here is well grounded in economics.

The FTC just secured a big win in its IQVIA/Propel case, the agency’s fourth blocked merger in as many weeks. This string of rapid-fire victories quieted a reactionary narrative that the agency is seeking to block too many deals and also should win more of its merger challenges. (“The food here is terrible, and the portions are too small!”) But the case did a lot more than that.

Blocking Anticompetitive Deals Is Good—Feel Free to Celebrate!

First and foremost, this acquisition, based on my read of the public court filings, was almost certainly illegal. Blocking a deal like this is a good thing, and it’s okay to celebrate when good things happen—despite naysayers grumbling about supporters not displaying what they deem the appropriate level of “humility.” Matt Stoller has a lively write-up explaining the stakes of the case. In a nutshell, it’s dangerous for one company to wield too much power over who gets to display which ads to healthcare professionals. Kudos to the FTC caseteam for securing this win.

Judge Ramos Gets It Right

A week ago, the actual opinion explaining Judge Ramos’s decision dropped. It’s a careful, thorough analysis that makes useful statements throughout—and avoids some notorious antitrust pitfalls. Especially thoughtful was his treatment of the unique standard that applies when the FTC asks to temporarily pause a merger pending its in-house administrative proceeding. Federal courts are supposed to play a limited role that leaves the final merits adjudication to the agency. That said, it’s easy for courts to overreach, like Judge Corley’s opinion in Microsoft/Activision that resolved several important conflicts in the evidence—exactly what binding precedent said not to do. This may seem a little wonky, but it’s playing out against the backdrop of a high-stakes war against administrative agencies. So although “Judge Does His Job” isn’t going to make headlines, it’s refreshing to see Judge Ramos’s well-reasoned approach.

The IQVIA decision is also great on market definition, another area where judges sometimes get tripped up. Judge Ramos avoided the trap defendants laid with their argument that all digital advertising purveyors must be included in the same relevant market because they all compete to some extent. That’s not the actual legal question—which asks only about “reasonable” substitutes—and the opinion rightly sidestepped it. We can expect to see similar arguments made by Big Tech companies in future trials, so this holding could be useful to both DOJ and FTC as they go after Meta, Google, and Amazon.

How Does This Decision Fit Into the Broader Project of Reinvigorating Antitrust?

One core goal shared by current agency leadership appears to be making sure that antitrust can play a role in all markets—whether they’re as traditional as cement or as fast-moving as VR fitness apps.

The cornerstone of IQVIA’s defense was that programmatic digital advertising to healthcare professionals is a nascent, fast-moving market, so there’s no need for antitrust enforcement. This has long been page one of the anti-enforcement playbook, as it was in previous FTC merger challenges like Meta/Within. But, in part because the FTC won the motion to dismiss in that case, we have some very recent—and very favorable—law on the books rejecting this ploy.

Sure enough, Judge Ramos’s IQVIA opinion built on that foundation. He cited Meta/Within multiple times to reject these defendants’ similar arguments that market nascency provides an immunity shield against antitrust scrutiny. “While there may be new entrants into the market going forward,” Judge Ramos explained, “that does not necessarily compel the conclusion that current market shares are unreliable.” Instead, the burden is on defendants to prove historical shifts in market shares are so significant that they make current data “unusable for antitrust analysis.” His opinion is clear, and clearly persuasive—DOJ and a group of state AGs already submitted it as supplemental authority in their challenge to JetBlue’s proposed tie-up of Spirit Airlines.

A second goal that appears to be top-of-mind for the new wave of enforcers is putting all of their legal tools back on the table. Here again, the IQVIA win fits into the broader vision for a reinvigorated antitrust enterprise.

Just a few weeks before this decision, the FTC got a groundbreaking Fifth Circuit opinion on its challenge to the Illumina/GRAIL deal. Illumina had argued that the Supreme Court’s vertical-merger liability framework is no longer good law because it’s too old. In other words, the tool had gotten so dusty that high-powered defense attorneys apparently felt comfortable arguing it was no longer usable. That happened in Meta/Within as well: Meta argued both of the FTC’s legal theories involving potential competition were “dead-letter doctrine.” But in both cases, the FTC won on the substance—dusting off three unique anti-merger tools in the process.

IQVIA adds yet another: the “30% threshold” presumption from Philadelphia National Bank. Like Meta and Illumina before it, IQVIA argued strenuously that the legal tool itself was invalid because it had long been out of favor with the political higher-ups at federal agencies. But yet again, the judge rejected that argument out of hand. The 30% presumption is alive and well, vindicating the agencies’ decision to put it back into the 2023 Merger Guidelines.

Stepping back, we’re starting to see connections and cumulative effects. The FTC won a motion to dismiss in Meta/Within, lost on the injunction, but made important case law in the process. IQVIA picked up right where that case left off, and this time, the FTC ran the table.

Positive projects take time. It’s easier to tear down than to build. And both agencies remain woefully under-resourced. But change—real, significant change—is happening. In the short run, it’s impressive that four mergers were blocked in a month. In the long run, it’s important that four anti-merger tools are now back on the table.

John Newman is a professor at the University of Miami School of Law. He previously served as Deputy Director at the FTC’s Bureau of Competition.

For his first two years as Secretary of Transportation, Pete Buttigieg demurred on critical transportation regulation, especially oversight of airlines. Year three has seen a welcome about-face. After letting airlines run amok, Buttigieg and the Department of Transportation (DOT) have finally started taking them to task, including issuing a precedent-shattering fine to Southwest, fighting JetBlue’s proposed merger with Spirit, and—according to news just this morning— scrutinizing unfair and deceptive practices in frequent flier programs. With last week’s announcement of Alaska Airlines’ agreement to purchase Hawaiian Airlines for $1.9 billion, it is imperative that Buttigieg and his DOT keep up the momentum.

Alaska and Hawaiian Airlines are probably the two oddest of the United States’ twelve scheduled passenger airlines, as different as their namesake states are from the lower 48. But the oddity of this union—spurred on by Hawaiian’s financial situation, with Alaska taking on $900 million of Hawaiian’s debt—does nothing to counteract the myriad harms that it would pose to competition.

Although there’s relatively little overlap in flight routes between Alaska and Hawaiian, the geography of the overlap matters. As our friends at The American Prospect have pointed out, Alaska Airlines is Hawaiian’s “main head-to-head competitor from the West Coast to the Hawaiian Islands.”

Alaska flies directly between Hawaii’s four main airports and Anchorage, Seattle, Portland, San Francisco, San Jose, Los Angeles, and San Diego. Hawaiian has direct flights to and from those same four airports and Seattle, Portland, Sacramento, San Francisco, San Jose, Oakland, Los Angeles, Long Beach, Ontario, and San Diego.

The routes where the two airlines currently compete most, according to route maps from FlightConnections, are the very lucrative West Coast (especially California) to Hawaii flights, as shown below in the table.

Competition on Routes from the West Coast to Hawaii

Airports	Alaska	Hawaiian	Other Competitors
Anchorage	Yes	No	None
Seattle*	Yes	Yes	Delta
Portland*	Yes	Yes	None
Sacramento	No	Yes	Southwest
Oakland	No	Yes	Southwest
San Francisco*	Yes	Yes	United
San Jose*	Yes	Yes	Southwest
Los Angeles*	Yes	Yes	American, United, Southwest
Long Beach	No	Yes	Southwest
Ontario, CA	No	Yes	None
San Diego	No	Yes	Southwest
Phoenix	No	Yes	American, Southwest
Las Vegas	No	Yes	Southwest
Salt Lake City	No	Yes	Delta
Dallas	No	Yes	American
New York	No	Yes (JFK)	Delta (JFK), United (Newark)
Boston	No	Yes	None

Note: * The merger would reduce actual competition.

As the table shows, five major Hawaiian routes overlap with Alaska Airlines’ offerings: direct flights between Honolulu and Seattle, Portland, San Jose, Los Angeles, and San Diego. This is no coincidence—it was one of the major selling points Alaska Airlines outlined on a call with Wall Street analysts, arguing that the merger would give them half of the $8 billion market in West Coast to Hawaii travel. Four of those routes will also face very little competition from other airlines. Delta is the only other major airline that flies between Seattle and any Hawaii destination, while Southwest is the only other option to fly direct between Hawaii and San Jose or Hawaii and San Diego.

And there is no competing service at all between Hawaii and Portland, where the only options are Alaska and Hawaiian. For this route, the merger is a merger to monopoly. Selling off a landing slot at Portland International Airport would not necessarily restore the loss in actual competition, as the buyer of the slot would be under no obligation to recreate the Portland-Hawaii route.

The merger clearly reduces actual competition on those five overlapping routes. But the merger could also lead to a reduction in potential competition in any route that is currently served by one but was planned to be served by the other. For example, if discovery reveals that Alaska planned to serve the Sacramento to Hawaii route (currently served by Hawaiian) absent the merger, then the merger would eliminate this competition.

But wait! There’s more. Alaska is also a member of the OneWorld Alliance, basically a cabal of international airlines that cooperate to help each other outcompete nonmembers. American Airlines is also a OneWorld member, meaning that Hawaiian will also no longer compete with American once it’s brought under Alaska’s ownership.

The proposed acquisition deal also has implications for the aviation industry more broadly, because concentration tends to beget more concentration. After Delta was allowed to merge with Northwestern, American and United both pursued mergers (with US Airways and Continental, respectively) under the pretense that they needed to get bigger to continue to compete with Delta. Basically, their argument was “you let them do it!”

Similarly, one way to view Alaska’s acquisition of Hawaiian is as a direct response to the proposed JetBlue-Spirit merger. If JetBlue-Spirit goes through, Alaska suddenly loses its spot in the top five biggest US-based airlines. But it gets the spot right back if it buys Hawaiian. This is how midsize carriers go extinct. From a lens that treats continued corporate mergers and lax antitrust enforcement as a given,

Alaska and Hawaiian can argue that their merger will actually keep things more competitive, if you squint the right way. They can claim that together, they will be able to compete more with Southwest’s aggressive expansion into the Hawaii and California markets and help them go toe-to-toe with United and Delta across the US west.

The problem is that this becomes a self-fulfilling prophecy—it assumes that companies will continue to merge and grow, such that the only way to make the market more competitive is to create other larger companies. This kind of thinking has led to the miserable state of flying today. Currently, the United States has the fewest domestic airlines since the birth of the aviation industry a century ago. There are only twelve scheduled passenger airlines–with significantly less competition at the route-level–and there hasn’t been significant entry in fourteen years (since Virgin America, which was later bought by Alaska, launched). This is not a recipe for a healthy competitive industry.

Moreover, twelve airlines actually makes the situation sound better than it is. As indicated by the table above, most airports are only served by a fraction of those airlines and antitrust agencies consider the relevant geographic market to be the route. Plus, of those twelve, only four (United, Delta, American, Southwest) have a truly national footprint. Those two factors combined mean that there is very limited competition in all but the largest airports and most flown routes.

In reality, the answer is better antitrust enforcement, which would enable Alaska and Hawaiian to compete with the bigger carriers not by allowing them to merge, but by breaking up the bigger carriers and forcing them to compete. Buttigieg’s DOT and other federal regulatory agencies can use their existing regulatory powers to do so (and brag about it). As airline competition has dwindled, passengers have faced worse conditions, higher prices, and less route diversity. Creating more competition would increase the odds that a company would shock the system by reintroducing larger standard seat sizes, better customer service, lower prices, new routes, or more—and would defend consumers against corporate price gouging, a goal Biden has recently been touting in public appearances.

Last winter, Buttigieg faced the biggest storm of his political career, between Southwest’s absolute collapse during the holidays and an FAA meltdown followed by the East Palestine train debacle. His critics, including us at the Revolving Door Project, pinned a lot of the blame on him and his DOT. Since then, he has responded in a big way. He started by hiring Jen Howard, former chief of staff to FTC Chair Lina Khan, as chief competition officer. They quickly got to work opposing JetBlue’s merger with Spirit Airlines and worked hard to truly bring Southwest to task for their holiday meltdown last year. Just days ago, the DOT announced that it had assessed Southwest a $140 million dollar fine, good for thirty times larger than any prior civil penalty given to an airline, on top of doling out more than $600 million dollars in refunds, rebookings, and other measures to make up for their mistreatment of consumers. Moving forward, the settlement requires Southwest to provide greater remuneration, including paying inconvenienced passengers $75 over and above their reimbursements as compensation for their trouble. Once implemented, this will be an industry-leading compensation policy.

This is exactly the kind of enforcement that we called for nearly a year ago, when we pointed out that the lack of major penalties abetted airline complacency, where carriers did not feel like they needed to follow the law and provide quality service because no one was going to make them. This year has been a wakeup call, both to DOT and to the airline industry about how rigorous oversight can force companies to run a tighter ship—or plane, as the case may be.

Buttigieg took big steps this year, but the Alaska-Hawaiian merger highlights the need for the DOT to remain vigilant. This merger may not be as facially monopolistic as past ones, but it does highlight that airlines are still caught up in their usual games of trying to cut costs and drive up profits by absorbing their competition. Regulators must be equally committed to their roles of catching and punishing wrongdoing, and in the long-term, restructuring firms to create a truly competitive environment that will serve the public interest.

Dylan Gyauch-Lewis is a Senior Researcher at the Revolving Door Project. He leads RDP’s transportation research and helps coordinate the Economic Media Project.

Right before Thanksgiving, Josh Sisco wrote that the Federal Trade Commission is investigating whether the $9.6 billion purchase of Subway by private equity firm Roark Capital creates a sandwich shop monopoly, by placing Subway under the same ownership as Jimmy John’s, Arby’s, McAlister’s Deli, and Schlotzky’s. The acquisition would allow Roark to control over 40,000 restaurants nationwide. Senator Elizabeth Warren amped up the attention by tweeting her disapproval of the merger, prompting the phrase “Big Sandwich” to trend on Twitter.

Fun fact: Roark is named for Howard Roark, the protagonist in Ayn Rand’s novel The Fountainhead, which captures the spirit of libertarianism and the anti-antitrust movement. Ayn Rand would shrug off this and presumably any other merger!

It’s a pleasure reading pro-monopoly takes on the acquisition. Jonah Goldberg writes in The Dispatch that sandwich consumers can easily switch, in response to a merger-induced price hike, to other forms of lunch like pizza or salads. (Similar screeds appear here and here.) Jonah probably doesn’t understand the concept, but he’s effectively arguing that the relevant product market when assessing the merger effects includes all lunch products, such that a hypothetical monopoly provider of sandwiches could not profitably raise prices over competitive levels. Of course, if a consumer prefers a sandwich, but is forced to eat a pizza or salad to evade a price hike, her welfare is almost certainly diminished. And even distant substitutes like salads might appear to be closer to sandwiches when sandwiches are priced at monopoly levels.

The Brown Shoe factors permit courts to assess the perspective of industry participants when defining the contours of a market, including the merging parties. Subway’s franchise agreement reveals how the company perceives its competition. The agreement defines a quick service restaurant that would be “competitive” for Subway as being within three miles of one of its restaurants and deriving “more than 20% of its total gross revenue from the sale of any type of sandwiches on any type of bread, including but not limited to sub rolls and other bread rolls, sliced bread, pita bread, flat bread, and wraps.” The agreement explicitly mentions by name Jimmy John’s, McAlister’s Deli and Schlotzky’s as competitors. This evidence supports a narrower market.

Roark’s $9.6 billion purchase of Subway exceeded the next highest bid by $1.35 billion—from TDR Capital and Sycamore Partners at $8.25 billion—an indication that Roark is willing to pay a substantial premium relative to other bidders, perhaps owing to Roark’s existing restaurant holdings. The premium could reflect procompetitive merger synergies, but given what the economic literature has revealed about such purported benefits, the more likely explanation of the premium is that Roark senses an opportunity to exercise newfound market power.

To assess Roark’s footprint in the restaurant business, I downloaded the Nation’s Restaurant News (NRN) database of sales and stores for the top 500 restaurant chains. If one treats all chain restaurants as part of the relevant product market, as Jonah Goldberg prefers, with total sales of $391.2 billion in 2022, then Roark’s pre-merger share of sales (not counting Subway) is 10.8 percent, and its post-merger share of sales is 13.1 percent. These numbers seem small, especially the increment to concentration owing to the merger.

Fortunately, the NRN data has a field for fast-food segment. Both Subway and Jimmy John’s are classified as “LSR Sandwich/Deli,” where LSR stands for limited service restaurants, which don’t offer table service. By comparison, McDonald’s, Panera, and Einstein are classified under “LSR Bakery/Café”. If one limits the data to the LSR Sandwich/Deli segment, total sales in 2022 fall from $391.1 billion to $26.3 billion. Post-merger, Roark would own four of the top six sandwich/deli chains in America. It bears noting that imposing this filter eliminates several of Roark’s largest assets—e.g., Dunkin’ Donuts (LSR Coffee), Sonic (LSR Burger), Buffalo Wild Wings (FSR Sports Bar)—from the analysis.

Restaurant Chains in LSR Sandwich/Deli Sector, 2022

Chain	Sales (Millions)	Units	Share of Sales
Subway*	9,187.9	20,576	34.9%
Arby’s*	4,535.3	3,415	17.2%
Jersey Mike’s	2,697.0	2,397	10.3%
Jimmy John’s*	2,364.5	2,637	9.0%
Firehouse Subs	1,186.7	1,187	4.5%
McAlister’s Deli*	1,000.4	524	3.8%
Charleys Philly Steaks	619.8	642	2.4%
Portillo’s Hot Dogs	587.1	72	2.2%
Jason’s Deli	562.1	245	2.1%
Potbelly	496.1	429	1.9%
Wienerschnitzel	397.3	321	1.5%
Schlotzsky’s*	360.8	323	1.4%
Chicken Salad Chick	284.1	222	1.1%
Penn Station East Coast	264.3	321	1.0%
Mr. Hero	157.9	109	0.6%
American Deli	153.2	204	0.6%
Which Wich	131.3	226	0.5%
Capriotti’s	122.6	142	0.5%
Nathan’s Famous	119.1	272	0.5%
Port of Subs	112.9	127	0.4%
Togo’s	107.7	162	0.4%
Biscuitville	107.5	68	0.4%
Cheba Hut	95.0	50	0.4%
Primo Hoagies	80.4	94	0.3%
Cousins Subs	80.1	93	0.3%
Ike’s Place	79.3	81	0.3%
D’Angelo	75.4	83	0.3%
Dog Haus	73	58	0.3%
Quiznos Subs	57.8	165	0.2%
Lenny’s Sub Shop	56.3	62	0.2%
Sandella’s	51	52	0.2%
Erbert & Gerbert’s	47.4	75	0.2%
Goodcents	47.3	66	0.2%

Total	26,298.60	230,629	100.0%

Source: Nation’s Restaurant News (NRN) database of sales and stores for the top 500 restaurant chains. Note: * Owned by Roark

With this narrower market definition, Roark’s pre-merger share of sales (not counting Subway) is 31.4 percent, and its post-merger share of sales is 66.3 percent. These shares seem large, and the standard measure of concentration—which sums the square of the market shares—goes from 2,359 to 4,554, which would create the inference of anticompetitive effects under the 2010 Merger Guidelines.

One complication to the merger review is that Roark wouldn’t have perfect control of the sandwich pricing by its franchisees. Franchisees often are free to set their own prices, subject to suggestions (and market studies) by the franchise. So while Roark might want (say) a Jimmy John’s franchisee to raise sandwich prices after the merger, that franchisee might not internalize the benefits to Roark of diversion of some its customers to Subway. With enough money at stake, Roark could align its franchisees’ incentives with the parent company, by, for example, creating profit pools based on the profits of all of Roark’s sandwich investments.

Another complication is that Roark does not own 100 percent of its restaurants. Roark is the majority-owner of Inspire Brands. In July 2011, Roark acquired 81.5 percent of Arby’s Restaurant Group. Roark purchased Wendy’s remaining 12.3 percent holding of Inspire Brands in 2018. To the extent Roark’s ownership of any of the assets mentioned above is partial, a modification to the traditional concentration index could be performed, along the lines spelled out by Salop and O’Brien. (For curious readers, they show in how the change in concentration is a function of the market shares of the acquired and acquiring firms plus the fraction of the profits of the acquired firm captured by the acquiring firm, which varies according to different assumption about corporate control.)

When defining markets and assessing merger effects, it is important to recognize that, in many towns, residents will not have access to the fully panoply of options listed in the top 500 chains. (Credit to fellow Sling contributor Basel Musharbash for making this point in a thread.) So even if one were to conclude that the market was larger than LSR Sandwich/Deli chains, it wouldn’t be the case that residents could chose from all such restaurants in the (expanded) relevant market. Put differently, if you live in a town where your only options are Subway, Jimmy John’s, and McDonald’s, the merger could significantly concentrate economic power.

Although this discussion has focused on the harms to consumers, as Brian Callaci points out, the acquisition could allow Roark to exercise buying power vis-à-vis the sandwich shops suppliers. And Helaine Olen explains how the merger could enhance Roark’s power over franchise owners. The DOJ recently blocked a book-publisher merger based on a theory of harm to input providers (publishers), indicating that consumers no longer sit alone atop the antitrust hierarchy.

While it’s too early to condemn the merger, monopoly-loving economists and libertarians who mocked the concept of Big Sandwich should recognize that there are legitimate economic concerns here. It all depends on how you slice the market!

Seven years ago, Einer Elhauge published a call to arms. In a provocative essay in the Harvard Law Review, he urged the antitrust agencies to bring enforcement actions against what he called horizontal shareholding and what we now call common ownership. Common ownership raises antitrust concerns because investors own shares in two or more competitors. While the investors do not control any of the competitors, their joint ownership may be sufficient to cause the competitors to raise prices or otherwise compete less aggressively.

Elhauge’s most powerful argument was that empirical evidence confirmed the hypothesized effect. In two elaborate studies, Jose Azar and co-authors found that increases in common ownership were associated with significantly higher prices in both the airline industry and the banking industry. Given this evidence and Elhauge’s endorsement, other scholars soon wrote supporting articles. Herb Hovenkamp and Fiona Scott Morton, Fiona Scott Morton, Eric Posner and E. Glenn Weyl, were among them.

This initial enthusiasm did not, however, lead to action. There have been no cases and there is no enforcement program. The Department of Justice’s and Federal Trade Commission’s proposed Merger Guidelines do mention common ownership and state that the enforcement agencies have “concerns” with it. But the draft Guidelines do not analyze common ownership in any detail. They do not explain how it might cause anticompetitive effects and what its procompetitive justifications might be. They do not outline any circumstances in which the agencies might challenge common ownership.

This essay suggests that the enforcement agencies ought to take a more muscular approach to common ownership. The Guidelines ought to give it a higher priority and identify the kinds of evidence that might lead to a lawsuit. In what follows, I explain what deflated the initial proposals, argue that those considerations no longer justify the near complete abandonment of interest in common ownership, and outline the evidence that could support a test case.

The Initial Attacks

Two principal arguments derailed the initial proposals. First, critics claimed that the empirical support for the theory was thin and flawed. And initially, the critics were right about the limited support: it consisted of just two studies—the Azar papers mentioned above. Moreover, methodological issues were raised about both studies.

The second attack was perhaps more devastating. Critics argued that no one had explained how common ownership could lead to higher prices or other anticompetitive effects. Of course, a common owner could orchestrate a cartel among the firms whose shares it held. But short of outright collusion—and no one had found evidence of outright collusion—how could this happen? What were the causal mechanisms?

Scott Hemphill and Marcel Kahan analyzed a range of potential mechanisms and concluded that all were either implausible or untested. Lucian Bebchuk, Alma Cohen & Scott Hirst asserted that big index funds charge such low fees that they would not gain any meaningful revenue by pressuring firms to adopt less competitive strategies. Douglas Ginsburg and Keith Klovers stressed that big funds hold shares not only in competitors, but also in vertically related firms, and those vertical investments would undercut their incentive to reduce competition in the relevant market.

These two attacks—on econometrics and governance—sapped the momentum of the initial proposals. Neither the Department of Justice nor the Federal Trade Commission decided to confront common ownership.

The Response

Seven years later, however, the grounds for devoting attention to common ownership are much stronger. There are now fifteen studies that find that higher levels of common ownership are associated with higher prices. Moreover, according to Elhauge, “only two of these empirical studies have been disputed, and the critiques of those two empirical studies have been rebutted at length.” Both the sheer number of studies and their improved methodologies suggest that the evidentiary basis for a challenge to common ownership may now be adequate.

Meanwhile, the corporate governance assault on the theory no longer appears to be so devastating. For one thing, the concern with vertical investments appears to be overstated. It is not clear that funds are as heavily invested in vertically related firms as they are in horizontal competitors. And even if they were, the funds would then be common owners upstream as well as downstream, which would heighten their ability to extract a supracompetitive return from the entire vertical chain.

Second, while index funds do earn small percentage fees, the costs of restricting competition among the firms they hold may be even lower. For example, when funds vote their shares, it costs no more to vote against directors who favor aggressive competition than to vote in their favor.

Third, it now appears that there are a variety of tactics that common owners could plausibly employ to transmit their interest in reduced competition. For instance, many funds regularly communicate with the managements of the firms they hold. They could use those opportunities to press for less discounting, less investment in new capacity, and more emphasis on compensation structures based on industry profits rather than firm-specific profits.

Likewise, funds could withhold their votes when firms or Board candidates propose strategies likely to disrupt the industry consensus. They could vote against hedge funds whose aim is to force the firm to compete more directly against rivals. As Elhauge describes:

[I]n 2015, there was a control contest over management of DuPont, whose main competitor was Monsanto. The fifth largest shareholder of DuPont, the Trian Fund, had no significant shareholdings in Monsanto and launched a control contest designed to replace Dupont’s managers with managers who would behave more competitively against Monsanto. This control contest failed, with the decisive votes to defeat it being cast by the top four shareholders of DuPont (Vanguard, BlackRock, State Street, and Capital Research), who were horizontal shareholders whose financial stake in Monsanto was about twice as high as their financial stake in DuPont.

And active funds (as opposed to index funds) could sell their shares when management embarks on an aggressive campaign to take sales from competitors.

In short, over the last seven years, the case for challenging common ownership has grown. There is much more empirical evidence of adverse effects and significantly greater reason to believe that investment funds can induce corporate officers and directors to curtail their competitive zeal. These developments call for a more active approach to common ownership in the Guidelines.

The Draft Merger Guidelines

The Guidelines ought to analyze common ownership in more depth and explain when it might be challenged. The analysis is straightforward. There is now a substantial literature on the competitive concerns with common ownership, the empirical evidence supporting those concerns, the potential benefits of common ownership, and the hurdles that may prevent common owners from influencing corporate management. The Guidelines can easily describe the major elements of the analysis.

The Guidelines should also identify the kinds of evidence that may warrant a challenge. Three categories seem especially appropriate. First, the relevant market—the market in which the commonly owned firms compete—should be highly concentrated. The agencies can use the same HHI threshold they employ elsewhere in the Guidelines to denote a highly concentrated market (1800).

Second, the level of common ownership should be substantial. The econometric studies measure common ownership by MHHI and the Guidelines should use the level of MHHI that the studies find is likely to be associated with higher prices or other anticompetitive harm.

Third, there should be direct evidence of anticompetitive effects. One could argue, as does Elhauge, that there is no need for direct evidence. The structural evidence (high HHI and substantial MHHI) should be sufficient. After all, fifteen studies have found an association between structural evidence and anticompetitive effects. But the first case challenging common ownership would be a test case and a test case is more likely to succeed—a skeptical court is more likely to accept a novel theory—if there is some direct evidence of harm.

The government could present evidence that in the relevant market higher levels of common ownership are associated with elevated prices, reduced innovation, or other anticompetitive consequences. That evidence could come from an empirical study, a company document, or a journalistic investigation. But given the number of supporting studies that already exist, such direct evidence of impact may not be necessary. What may be essential, in the first case at least, is evidence that a common owner took an affirmative step to dampen competition, such as a direct communication between the owner and an executive, a comment on an earnings call, or a vote against increased competition. The government ought to offer, if possible, a direct connection between common ownership and anticompetitive harm.

If a test case succeeds, the agencies may pursue an enforcement program against common ownership. At that point, the agencies ought to give guidance to investment funds on the relevant markets that are of greatest concern. Eric Posner and co-authors have proposed a method for providing such notice. At this point, however, it is more important that the Guidelines assign a higher priority to common ownership and describe the circumstances that are most likely to result in an action.

John B. Kirkwood is a Professor at Seattle University School of Law and a member of the American Law Institute.