Update 718 — A Consuming Concern

Status of Merger and Competition Policy

It’s not just inflation making consumers uneasy about products and prices. Critical sectors of the U.S. economy have seen increased concentration in recent years, and whether it’s Taylor Swift tickets or food on the table, limited choices and rising costs afflict consumers everywhere. Today, we look at reforms proposed in Congress and by the Biden administration to address consumer concerns through corporate merger and competition policy. 

Also of note, the first official event of the 2024 presidential cycle will occur with a debate among eight GOP candidates, with the notable absence of Donald Trump. The former president seems content for now lobbing attacks directed at Gov. Ron DeSantis, who himself is likely to be the in-person target among the other participants. Watch for positions taken regarding Trump, who may be looking for a running mate.

Best,
Dana

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Since the 1970s, American antitrust policy has been weakened and waves of corporate consolidation have progressively reduced competition across the economy. Markets from tech to agriculture have become highly consolidated with just a few firms dominating, raking in higher profits while consumers and small businesses pay the price.

Some in Congress are seeking to tackle the problem head-on with strong legislation. Here are the bills we’ll be following as members of Congress return from the August recess, as well as the status of broader guidelines proposed by the Federal Trade Commission (FTC) and Department of Justice (DOJ).

2023 Farm Bill Reauthorization

Every five years, Congress must reauthorize the farm bill, an expansive piece of legislation as broad and complex as the landmark Infrastructure Investment and Jobs Act that authorizes funding for an array of agricultural and food programs. The most recent omnibus farm bill was enacted in December 2018 and expires on September 30. The current baseline for farm bill programs is estimated at $725 billion over five years and $1.463 trillion over ten.

The legislation affords an opportunity to tackle the growing concentration in the food and agriculture sectors and the dangerous implications of that concentration for family farmers and ranchers, workers across the food supply chain, consumers, and the food we eat. 

Several bills introduced this year could do just that.

• The Meat and Poultry Special Investigator Act, reintroduced by Senator Jon Tester (D-MT) in February, would establish an Office of the Special Investigator for Competition Matters within the Department of Agriculture (USDA) to promote competition in the food and agriculture sectors. It would also authorize that office to investigate and prosecute violations of the Packers and Stockyards Act of 1921. The bill would direct the Secretary of Agriculture to appoint a special investigator to head the new office and to serve as a liaison to the DOJ and the FTC.
• The Opportunities for Fairness in Farming (OFF) Act, led by Senators Mike Lee (R-UT), Cory Booker (D-NJ), Elizabeth Warren (D-MA), Kirsten Gillibrand (D-NY,) and Rand Paul (R-KY) in the Senate and Representatives Dina Titus (D-NV) and Nancy Mace (R-SC) in the House, seeks to reform to checkoff programs. The mandatory participation programs under the USDA have produced promotional campaigns like “Beef. It’s What’s for Dinner” and “Pork. The Other White Meat.” But they continue to be funded by compulsory fees on producers of products like milk, eggs, and beef and funnel the majority of those funds to industry groups that lobby against their interests. The bill, which was introduced in February, would prohibit checkoff programs from contracting with organizations that lobby on agricultural policy.
• The American Beef Labeling Act of 2023, led by Senators John Thune (R-SD), Jon Tester (D-MT), Mike Rounds (R-SD), and Cory Booker (D-NJ) and introduced in January, would reinstate mandatory country of origin labeling (MCOOL) for beef. The legislation would require the U.S. Trade Representative (USTR), in consultation with the Secretary of Agriculture, to develop a World Trade Organization-compliant means of reinstating MCOOL for beef within one year. The bill would address the current beef labeling system, which allows imported beef that is neither born nor raised in the United States, but simply finished in the United States, to be labeled as a product of the USA. 

2023 FAA Reauthorization

Also regarded as a must-pass bill is the 2023 Federal Aviation Administration (FAA) Reauthorization Act, which would extend the FAA’s funding for the next five years. 

The House version includes the particularly concerning Section 701, which states that airlines are only required to disclose the “base airfare” to consumers rather than the total price of a ticket which includes government taxes and additional fees. Such a move would roll back a standard set forth under the Obama administration requiring airlines to use the all-in cost to consumers rather than the base price, minus fees, on websites and in advertising.

Last month, Representatives Jan Schakowsky (D-LI), Alexandria Ocasio-Cortez (D-NY), and Chris Deluzio (D-PA) introduced an amendment to the 2023 FAA reauthorization bill that would remove Section 701 from the act to ensure continued transparency in ticket pricing.

Defending the Right to Repair

Consumer devices are becoming more short-lived. According to one study, between 2004 and 2012, the proportion of major household appliances that ceased to function within five years of purchase rose from 3.5 to 8.3 percent. While manufacturers cite intellectual property concerns as they try to restrict consumers’ right to repair the everyday products they purchase – products increasingly composed of chips and other sophisticated technology – American consumers are constrained in their legal ability to repair rather than replace broken items that could easily be fixed. Several strong bills have emerged to protect Main Street repair shops and their customers:

• The Save Money on Auto Repair Transportation or SMART Act, introduced by Representatives Darrell Issa (R-CA) and Zoe Lofgren (D-CA) in March, would reduce the period over which automakers can enforce design patents against alternative parts manufacturers on collision repair parts from fifteen to two and a half years.
• The Right to Equitable and Professional Auto Industry Repair or REPAIR Act, a bipartisan bill introduced by Representative Neal Dunn (R-FL) in February, would safeguard access to vehicle data which contains critical repair information to provide consumers with choices for the maintenance, service, and repair of their motor vehicles.

Proposed Rules on the Underlying Merger Framework

The number of corporate mergers completed annually in the U.S. rose from 2,308 in 1985 to 15,361 in 2017, with a corresponding reduction in the number of producers and products. The way we look at mergers and acquisitions has shifted over this period. 

Horizontal mergers – those in which companies that offer similar products or services merge – have long been the subject of scrutiny by antitrust enforcers due to their clear implications for competition. On the other hand, vertical mergers – those in which a company buys a supplier, distributor, or retailer above or below them in the supply chain – have traditionally been regarded in theory as beneficial to consumers and companies as efficiencies could arise and drive costs down. 

As we’ve seen with Ticketmaster/Live Nation’s impact on the live entertainment industry, efficiencies gained through vertical integration often result in increased profits for companies rather than lower costs for consumers and give rise to greater structural dangers. In practice, vertical consolidation can create potential conflicts of interest by incentivizing companies to give preference to their own products over those of their competitors.

The FTC and DOJ are taking action to address concentration and its consequences. Their recently proposed guidelines on approving mergers represent one of the most important developments in antitrust law in over a decade. The proposal would update the technical framework used to assess the effect of mergers on competition. It lays out roughly a dozen clear ways that mergers can violate the Clayton Act, the statute that most directly addresses mergers. The draft guidelines are open to public comment until September 18. Thereafter, the FTC and DOJ will move toward finalizing the proposed guidelines.

Continuing the Fight

While the process of strengthening the broader antitrust framework continues, consumers are becoming more vocal in their opposition to mergers in highly consolidated markets. In this vein, 20/20 Vision is particularly skeptical about the proposed merger of Kroger and Albertsons. These firms, if combined, would control over 15 percent of the grocery market share, and the resulting company would be the second largest grocer by market share in the United States at 48 percent. The merger would affect communities should the resulting company close stores, making it harder for residents to access fresh affordable food, potentially creating and exacerbating food deserts. The merger would also affect workers who would lose bargaining power over their wages and benefits and could be laid off if stores are closed.

Major mergers over the last decades have demonstrated the impact of high levels of consolidation on much of the economy, harming consumers, small businesses, and products. Strong guidelines from government agencies and legislation can work hand-in-hand to make the next decade of mergers and acquisitions work for everyone rather than simply reduce consumer choice and add to inflation.