Many in the anti-monopoly movement are celebrating the recent DOJ victory against the Northeast Alliance (NEA). It’s a rare enforcement action in the airline industry, and a rare decision that gives a clear victory to the DOJ.

But I will not be celebrating. What follows is my attempt to read the potential tea leaves from the NEA decision in looking forward to the JetBlue/Spirit merger. The TLDR: Don’t count the JetBlue/Spirit merger down and out based upon the NEA decision. While I’m pleased with DOJ’s victory, one step forward does not eradicate the giant leaps backward that have befallen the airline industry in the past few decades.

Fake Remedies and Abdication of Responsibility

In every instance of past consolidation in the airline industry, the DOJ (a) did nothing; (b) compelled the divestiture of slots and gates; or (c) filed a complaint, then got spanked by politicians into settling for slots and gates.

A couple of examples should suffice.

In 2013, the DOJ entered into a consent decree in the proposed merger of U.S. Air and American Airlines. The remedy, as is often the case, focused on the sale of slots and gates at LaGuardia Airport, as well as gates at other airports.

Yet the complaint stated that competition would have been enhanced with the emergence from bankruptcy of American Airlines as a standalone competitor. The complaint also argued that the industry had suffered from consolidation (from nine to five majors), and that fares increased due to that consolidation.

So, it’s only natural that slots and gates at a few airports would fix that, right? Not according to the complaint. Head-to-head competition would be eradicated. And it’s hard to start a network carrier, I might add, even with access to slots and gates.

One other example is in order. In the United-Continental merger, despite 18 overlapping markets (routes), the DOJ closed the investigation into the merger with the parties’ agreeing to sell slots and other assets in Newark to Southwest Airlines.

Slots and gates solve all ills in the airline industry. Got it. Unless you’re in one of those overlapping markets, where there is no obligation of the winning bidder of said slot to service the same route. Or unless you’re in rural America, where service has either disappeared completely or is much more expensive.

I don’t want to rehash the entire history of consolidation in the airline industry or the significant role that DOJ has played in shaping that development, but these two transactions are just a few on the path of placating the airlines by essentially creating a “tax” on the transaction that did not cure the anticompetitive ills of the mergers whatsoever. I do not, by the way, blame my former colleagues on staff at the DOJ for this. My blame goes higher up than the trial attorneys and paralegals who work those cases.

Given these data points, does the decision by Judge Sorokin represents a “sea change” in antitrust enforcement in the airline industry? I think not. Let’s break the decision down by some key elements: Concentration, efficiencies, and entry. I’ll also add a comment about the role of economists in that analysis.

Concentration Is Not New

Judge Sorokin discovered what many of us know already: “The industry is highly concentrated. Four carriers control more than eighty percent of the market for domestic air travel: the three GNCs (American, Delta, and United) and Southwest. The remainder of the market—less than twenty percent—is generally split among nine smaller carriers.” 

At mainstream antitrust conferences, where consultants are rewarded for taking positions aligned with the most powerful, one might find a variety of people telling you that the airline industry is not concentrated. Since 2001, American bought TWA, U.S. Airways bought America West, American merged with U.S. Air, Delta with Northwest, United with Continental, and Southwest with AirTran. The full list can be found here. In each instance, DOJ was complicit. And, by the way, the market was highly concentrated before those decisions. Take DOJ’s complaint in U.S Air/American: “In 2005, there were nine major airlines. If this merger were approved, there would be only four. The three remaining legacy airlines and Southwest would account for over 80% of the domestic scheduled passenger service market, with the new American becoming the biggest airline in the world.” Indeed, many of the HHIs in the markets in question in that merger exceeded 2,500, or what the Merger Guidelines consider to be “highly concentrated markets.” 

After that merger, others followed. Alaska and Virgin merged, Southwest bought some locals, and United bought ExpressJet.

So it is only natural that the DOJ allege concentrated markets in its complaint in the JetBlue/Spirit Merger: According to the agency’s calculations, the merger increases concentration in 150 routes, including 40 nonstop routes. The complaint alleges the risk of heightened coordination among the remaining airlines as well and lower innovation in service.

In short, there is nothing new on the concentration side. ‘Twas ever thus (at least the past 20 years). This suggests that high concentration is not predictive of stopping an anticompetitive merger.

Efficiencies Arising from the Elimination of Competition

Judge Sorokin was skeptical of the claimed efficiencies in the NEA: “American’s Chief Executive Officer (‘CEO’) described the numerous challenges created by mergers, as well as the “inordinate amount of management time and attention” required to integrate two airlines.”  Prior mergers touted those great efficiencies. Some during that time period (me included) argued that those efficiencies do not pan out, take longer to achieve, and may be ethereal.

But the parties to the NEA claimed efficiencies even absent merger. Judge Sorokin rejected the claimed efficiencies, ruling they were insufficient to rebut the claimed harms in the NEA litigation. As Judge Sorokin pointed out: “These features arise only if the defendants mimic one carrier, elect not to compete with one another, and cooperate in ways that horizontal competitors normally would not. This elimination of competition negatively impacts the number and diversity of choices available to consumers in the northeast. As such, ‘benefits’ arising in this way cannot justify the defendants’ collusion.”

It’s hard to read that conclusion without thinking about the claims of merger efficiencies in the past. It suggests that the efficiency claim would have been stronger if the NEA members had merged rather than formed an alliance. If that’s the right reading, that could spell trouble for the DOJ in JetBlue/Spirit.

So again, nothing new here, except it was defendants arguing that merger efficiencies are hard to achieve, and in essence claimed that the NEA achieved the same efficiencies without requiring integration. Again, the U.S. Air/American complaint was skeptical of such purported efficiencies: “There are not sufficient acquisition-specific and cognizable efficiencies that would be passed through to U.S. consumers to rebut the presumption that competition and consumers would likely be harmed by this merger.”

Often times, those statements are made in hopes of “out of market” efficiencies counting in favor of the transaction. As the Commentary to the Merger Guidelines states, “Inextricably linked out-of-market efficiencies, however, can cause the Agencies, in their discretion, not to challenge mergers that would be challenged absent the efficiencies. This circumstance may arise, for example, if a merger presents large procompetitive benefits in a large market and a small anticompetitive problem in another, smaller market.” While that Commentary goes against everything that Philadelphia National Bank stands for, it is nonetheless continued policy. Just ignore the citation to Philadelphia National Bank in the complaint. That’s on presumptions.

Nonetheless, the complaint in Jet Blue/Spirit states that “Defendants have not yet described any procompetitive efficiencies in the alleged relevant markets.”

The American Antitrust Institute has been shouting this point for at least a decade. Take Diana Moss’s paper in 2013, explaining that: “System integration (e.g., integrating reservation and IT systems and combining workforces) in some past mergers has been difficult, protracted, and more costly than what was predicted by the airlines.” Others, including yours truly, have asserted the same.

Entry Is Not Easy

Judge Sorokin indicates that barriers to entry into the markets where NEA operates are significant, with likely entry not mitigating the anticompetitive effects. For example, in Boston and New York City, the judge describes the entry barriers as insurmountable: “By ending competition between American and JetBlue, the NEA means that seventy-three percent of domestic flights at Logan are controlled by two (rather than three) entities: Delta and the NEA. In New York, where entry or expansion by any airline is severely limited due to the FAA’s slot constraints at JFK and LaGuardia, the NEA ensures that eighty-four percent of the slots at JFK and LaGuardia are held by the same two (rather than three) entities that now dominate Logan.”

The JetBlue/Spirit complaint concurs: “New entrants into airline markets face significant barriers, including: difficulty in obtaining access to airport facilities or landing rights, particularly at congested airports; existing loyalty to particular airlines; and the risk of aggressive responses to new entry by a dominant incumbent.” 

Curious. If entry is as difficult as the current DOJ and Judge Sorokin now suggest, where were those concerns in the prior two decades, when gate and slot sales were held out as the great elixir to lost actual competition?

Not All Economists

Judge Sorokin found defendant economists’ testimony problematic, lacking in nuance, and biased: “The apparent bias of the defendants’ retained experts is reason enough to reject the

opinions and conclusions they rendered in this case.”  Again, this is not a surprise. Matt Stoller’s description of people in lab coats who never get graded on their assignments is apt.

Much has been written about the repeated use of economists to weave magical models that later result in unhappiness for consumers. ProPublica had a piece on the expert economist market four years ago, titled “These Professors Make More Than A Thousand Bucks an Hour Peddling Mega Mergers.”  The title is a bit dated, due to the inflationary effects in the economic expert market—$1,000 is considered affordable now. Regardless, this practice is ages old. Agencies almost expect certain economists to walk in the door peddling particular mergers. I should disclose my own personal experience getting stomped by Dan Rubinfeld as I sought to stop the United/Continental merger. Consolidation in 18 nonstop markets was simply insufficient to be a problem for defendants’ economist, who was far more prepared, diligent, and careful.

I do not take Judge Sorokin’s judgment of defendants’ economists as a judgment of all experts. I take it to mean that economists must do more to shore up their assertions and conclusions apart from merely proclaiming themselves to be gods of knowledge. In other words, experts should not engage in “sweeping assertions,” “unnuanced and poorly reasoned conclusions,” “overly simplistic view[s],” “absurd” reasoning, or other analysis the court finds is entitled to ultimately “no weight.”

In short, maybe courts will start treating defendant’s economic experts like they treat plaintiff’s economic experts. And yes, that means they’ll get the blame for losing, even if it not deserved. It might also mean that JetBlue/Spirit should think about its expert reports carefully, and who gives those reports.

Conclusion

Before I get emails pointing out that policies and administrations change: I know. But those policies have an effect on the law as it is applied. Just as one example, there is no meaningful or substantive judicial review of consent decrees. And thus, when the DOJ became the Surface Transportation Board of the friendly skies (blessing all mergers that came before it), there was no countervailing power to stop it. Those impacts cannot be undone. They are permanent.

So, while I’m happy about Judge Sorokin’s decision, it doesn’t predict the future. The DOJ may very well still lose JetBlue/Spirit if it goes to trial. And if does lose, it only has its prior self to blame.

In the last thirty years, the United States has experienced a whirlwind of concentration among food suppliers. This elimination of competition is an urgent problem not only because consumers are faced with higher prices and less food choices in grocery stores, but also because the largest agribusinesses on Earth (“Big Ag”), as a result of their massive economic and political power, clog up the workings of our political system to the detriment of democracy and the planet.

Big Ag’s rising profits have been shown to be a driving force behind inflationary food prices again and again. A recent analysis by the White House explained that “If rising input costs were driving rising meat prices, those profit margins would be roughly flat, because higher prices would be offset by the higher costs.”

In addition to these already egregious displays of power and control, Big Ag also destroys the planet’s natural resources, violates existing labor laws, engages in atrocious and inhumane animal processing practices, and puts small farms out of business. Both the legal and economic arrangements that enable this behavior create an unfair political economy that’s immensely profitable and partial to large agribusinesses; these forces allow massive corporations like Monsanto, Tyson, Cargill, and John Deere to largely evade antitrust scrutiny.

As a result, Big Ag players garner enormous market power and uneven political clout, positioning themselves to create even more favorable legislation with which to entrench their dominance in each sector of agriculture, from beef to farming equipment to poultry to seeds.

It Begins on the Farm

An immediate example of Big Ag’s might is in farming equipment. Before the 1930s, over 160 companies sold farm equipment in response to growing industrialization and mechanization of farming. Through industry consolidation, however, John Deere emerged as the leading supplier of agricultural machinery in the United States. Today, John Deere stands alone as the dominant player, commanding roughly 53 percent of the market for large tractors and 60 percent for combines. From 2005 to 2018, John Deere acquired a staggering twelve companies that specialized in sectors ranging from farm equipment to precision technology.

In February, the Department of Justice filed six lawsuits in an effort to crack down on Deere’s monopoly power, engaging in a right-to-repair battle in four states. The lawsuits allege that Deere has illegally attempted to control the repair of Deere equipment, such as tractors and combines, using electronic-control units. The filing contends that the farming equipment giant and its dealerships monopolize the market for repair and maintenance services by designing proprietary Deere equipment, which requires Deere-controlled software for the diagnosis and maintenance functions. That software is exclusively available to technicians authorized by Deere. This arrangement leaves many independent shops and farmers beholden to Deere-authorized vendors when repairing their equipment. In this way, Big Ag poses a sort of private tyranny over those who have to rely on their equipment to make a living, and they are largely left unaccountable to the public and consumers.

Merger Mania

The tentacles of Big Ag reach beyond equipment into our milk and meat supply. Industry concentration in dairy has led to fewer farms and more mega-dairy operations, diminishing the profits of small family farms. The beef industry similarly has become more heavily concentrated. Today, only four firms—Tyson, Cargill, JBS, and National Beef Packing Co.—control over 70 percent of the nation’s beef supply, and they processed roughly 85 percent of cattle in the United States in 2018.

The level of concentration occurred at such a breakneck pace since the 1980s that Department of Agriculture economists characterized this wave of mergers as “merger mania,” during which concentration soared from 35.7% in 1980 to 71.6% by 1990 in the beef packing sector.

For instance, through mergers in the agriculture industry, “the four largest meatpackers have increased their share of the market from 36% to 85%, and the largest four sellers of corn seed accounted for 85% of U.S. corn seed sales in 2015, up from 60% in 2000.

Due to the resulting power over consumers and input providers, these mega-corporations are doing better than ever. The level of concentration, and the control over factory farming that it grants, are partially responsible for Tyson Foods’ beef sales jumping to $5 billion in the first quarter of 2022, lifting overall sales to $12.93 billion. Tyson Foods realized over a billion dollars in new dividends and stock buybacks. Add this to the more than $3 billion already they paid out to shareholders since the pandemic. In beef processing, corporate profits skyrocketed by $96.9 billion in the third quarter of 2021 alone.

Economic Power Translates into Political Power

Though it is hard to pinpoint a specific and clear approximation of the political power large agribusiness has achieved, each industry as a whole has immense political power resulting from their economic growth and profits from concentration. This is malfeasance in the highest order. Food monopolists and other dominant players in our agriculture system have the ability to contribute a large amount of campaign funds to key lawmakers in charge of legislating the sectors where mega corporations have a direct interest.

Farm subsidies in the United States largely support private associations and large corporations. These subsidies account for roughly 39 percent of farm income while the biggest agriculture firms continue to make record-breaking profits. The United States government gives away free money to private corporations that continue to increase their profits without contributing back into the public coffers or without providing adequate care to farm animals or adequate compensation (or safety) to the labor that generates the profit.

One example is the National Cattlemen’s Beef Association (NCBA). Researchers have long understood how clear the intent to monopolize is through the political clout of large, private trade associations, like the NCBA, which is directly paid a proportion of the proceeds from the U.S. government from every beef sale (like supermarkets steaks or hamburgers from a fast-food restaurant). In addition to lobbying for the further consolidation of the meat-processing industry, the NCBA uses these proceeds to lobby for Americans to eat more meat and to oppose district court judges who are sympathetic to animal rights.

The Social Costs Are Adding Up

Food production and industrial farming pose existential threats to critical ecosystems and rural populations, accelerating climate change by polluting and contributing massively to greenhouse gasses. The natural resources needed to sustain the increasing industrialization of our agricultural infrastructure are exhausted at the behest of large industry titans not in the least bit compelled to employ sustainable environmental practices. These effects are undesirable to everyone but to large agribusiness polluters, which perversely gain a greater capacity to pollute and contribute to climate change to a meaningful degree as they grow in scale and size.

The broader societal costs of the size, power, and dominance of food monopolies are far reaching. Economic power garnered from consolidating food industries, especially during the ongoing COVID-19 pandemic, yields uneven political influence—where corporations shape laws to get enacted in their favor, which in turn garners them more control of the food system. In the legal system, the problem of agriculture monopolies cannot be adequately dealt with on purely economic grounds either. This is because of the popularized role that economic analysis plays in assessing anticompetitive harm. With its fixation on short-run consumer price effects, the current economic lens cannot fully capture the ways in which Tyson, Bayer, or Monsanto grow their market power. Like other dominant players in industries, major corporations within Big Ag also mold political outcomes in their favor to avoid critical enforcement. They achieve this by influencing the anti-monopoly policies enacted to proscribe and limit their size in the first place, positioning themselves to dictate the terms for which market activity is stimulated.

When applying the law, antitrust courts should abandon the antiquated Chicago School dogma, which naively assumes that markets are self-correcting and that consumer welfare is paramount. When it comes to assessing the true harms of food monopolies and food barons, which undermine the rights of local farming operations, antitrust authorities should instead consider a broader set of anti-monopoly goals in order to disperse power more evenly among local farming operations nationwide.

To continue to permit consolidation in the aforementioned ways is anti-democratic. A strategy to implement these tools simply requires the political will to hold Big Ag corporate titans accountable by legally compelling them to relinquish control of their hordes of wealth, industry control, and attendant political influence.

Tyler Clark is an economist working on anti-monopoly, corporate power, and antitrust research. A recent graduate of the M.S. program in economics at the University of Utah, Tyler hopes to return and pursue a JD specializing in antitrust law. You can follow him on Twitter @traptamagotchi.

Just weeks after a series of high profile train derailments headlined by the disaster in East Palestine, Ohio, the Surface Transportation Board (STB) decided to double down on the current railroad oligopoly. The STB approved a merger between Canadian Pacific Railway and Kansas City Southern Railway Company, cutting the number of major “Class I” rail companies in the United States from seven down to six. This decision is diametrically opposed to the public interest and seriously undermines trust in rail regulators.

The merger approval clearly violates President Biden’s Executive Order on Promoting Competition in the American Economy, which explicitly directed the STB to begin rulemaking to make it harder for railroads to engage in anticompetitive practices. The order instructed the chair to “consider rulemakings pertaining to any other relevant matter of competitive access, including bottleneck rates, interchange commitments, or other matters.” Instead, the STB has abetted concentration that makes it harder to regulate.

Because the decision goes against Biden’s overarching competition agenda, the Revolving Door Project today released a letter with RootsAction and FreedomBLOC calling for President Biden to relieve Martin Oberman from his chairmanship at the STB. This backtracking requires a major course correction that can only be achieved by a change in leadership. 

Besides being antithetical to one of the defining policies of the Biden administration, the STB’s decision breaks from other parts of the administration. As the FTC and DOJ Antitrust Division have redoubled their efforts to push back on monopolization across the economy, the STB approved the first big freight-rail merger since the 1990s. But it’s not just the FTC and DOJ going in the opposite direction of the STB; Secretary Pete Buttigieg and his Department of Transportation have recently raised their scrutiny of transportation mergers, highlighted by blocking airline consolidation. 

And while Buttigieg has not explicitly chimed in on the rail merger, other regulators did, warning the STB against approval. The DOJ Antitrust Division warned against the merger, saying it could “empower the merged railroad to deny shippers access to the lowest cost or fastest end-to-end routings. […] The railroad sector in particular, with its relatively high fixed and sunk costs, often enjoys substantial structural entry barriers and advantages that may facilitate or incentivize anticompetitive behavior.”

Additionally, a majority of the Federal Maritime Commission opposed the merger, arguing that “the proposed consolidation does not ensure that the anticompetitive effects of the transaction outweigh the public interest in meeting significant needs.” As I’ve written before, the FMC has a history of serious dovishness on consolidation, making such a strong position all the more notable. The merger is even being opposed by another railroad; Union Pacific is suing to block the STB’s decision.

Besides undermining the administration’s broader policy agenda, the STB’s decision will also undermine safety in the rail industry. What’s the basis for such a strong claim? The STB’s own analysis found the merger would “slightly increase” risks of derailments. Taking their analysis at its word, even slight increases in such risks seem folly after Norfolk Southern set East Palestine ablaze with a single derailment. That incident highlighted how underequipped and unprepared regulators were to deal with any derailment. Allowing an increase in that risk just to enable more corporate profits is a bad trade for the American people. 

Another cost of the merger is less effective oversight. As I wrote in The Sling in March, “More industry concentration makes effective regulation harder. As firms increase in size, they gain more and more of a resource advantage over their regulators. One behemoth corporation can often hire more lawyers and cultivate more relationships with lawmakers in order to obfuscate enforcement measures than multiple smaller ones could.”

Of course, there are corporate-friendly defenders of the merger. The Economist argued that the merger “may end up enhancing competition” because the two rail companies do not directly compete—there are no overlapping tracks—and because the merged entity “will provide the first train lines running from Canadian ports through the heart of the United States into Mexico. This is poppycock: A merger that doesn’t involve head-to-head competitors can still be harmful if it enables the merged firm to engage in anticompetitive behavior such as blocking rival’s market access.

Indeed, The Economist gives the game away in the very next paragraph, admitting the rail “industry is also consolidating, which leads to greater pricing power.” There’s only one consolidation going on and it’s the one they’re seeking to defend. If pricing power will increase simply by virtue of consolidation, that means that even though the current lines don’t overlap, the merger facilitates anti-competitive behavior. Full stop.

This is exactly the point the DOJ made in its statement to the STB as well. As they put it:

Even beyond the elimination of head-to-head competition, mergers that increase market power can harm competition in several ways. The merger can empower the merged railroad to deny shippers access to the lowest cost or fastest end-to-end routings. Likewise, in the absence of a complete refusal to interchange traffic, mergers may enable firms to foreclose competition in other ways, such as raising costs for their rivals through control over inputs or access. Such mergers also can create a more conducive structure for post-merger coordination between direct competitors by facilitating communication or discipline through the new integrated asset. The railroad sector in particular, with its relatively high fixed and sunk costs, often enjoys substantial structural entry barriers and advantages that may facilitate or incentivize anticompetitive behavior. For example, railroads may anticompetitively refuse to interchange traffic and/or favor the newly integrated company’s long-haul route over a more efficient joint line route.

Four of the other five Class I railroads agree, having opposed the merger because of how it would enable the new CPKC to block competitors from accessing important junctions, particularly Houston. This comes after earlier concerns from Union Pacific and BNSF around the Houston terminal. In short, the massive market power the merger grants CPKS will allow for the firm to undermine competition by blocking other railroads from readily accessing interchanges and other rail that Kansas City Southern currently shares with other shippers. Despite the two firms not directly competing in their current routes, the vertical integration creates the opportunity to force business away from other railroads because of the degree of control over their competitors’ ability to operate competing routes.

The Canadian Pacific-Kansas City Southern merger undermines administration policy and directly contributes to further anticompetitive practices in the rail industry. It is also likely to cause worse service, job cuts, weaker oversight, and higher prices, among other harms. President Biden should heed his Transportation Department, Justice Department, and Federal Maritime Commission and appoint new leadership at the STB.

Dylan Gyauch-Lewis is a researcher at the Revolving Door Project.