Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Thoughts Podcast.
Speaker 2: I'm Tracy Allaway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, we've done a little bit at this point on antitrust.
Speaker 2: I feel like, kind of interestingly, the first time it
Speaker 2: ever really came up substantively for us was I think
Speaker 2: it was like way back in twenty twenty or maybe
Speaker 2: twenty twenty one, where we were talking about the potential
Speaker 2: for antitrust enforcement to bring down inflation. I don't know
Speaker 2: if you remember that totally.
Speaker 3: No, I do remember it. I think we were talking
Speaker 3: about it actually in the context of shipping at the time. Yeah,
Speaker 3: of course, the major source of inflationary pressure was the
Speaker 3: stress on supply chains. But then that brought away, I
Speaker 3: would say. And then it's since you know people paying
Speaker 3: attention to it more, which is that you know how
Speaker 3: to bottlenecks emerge? How do inflationary bottlenecks merge? One theory
Speaker 3: one source of these inflationary bottlenecks is parts of the
Speaker 3: economy where there's not very good competition.
Speaker 4: Yeah.
Speaker 2: Absolutely. And the other interesting thing that's been happening recently
Speaker 2: is it feels like definitions of anti trust and anti
Speaker 2: competitive practices have been expanding, right. You hear this term
Speaker 2: hipster antitrust all the time, this idea that maybe anti
Speaker 2: competitive behavior doesn't just materialize in things like prices, but
Speaker 2: also in things like labor practices.
Speaker 3: Totally. I think the rise of the huge tech giants
Speaker 3: has contributed to this because you do have this situation
Speaker 3: in which it feels like there are entities. Look, if
Speaker 3: you have like a gigantic steel monopoly or whatever, how
Speaker 3: is that going to manifest itself as being bad for
Speaker 3: the economy, Probably by really high steel prices, right. I
Speaker 3: think in some of these other business models, you sense
Speaker 3: that there is concern about corporate power, corporate concentration, extremely
Speaker 3: powerful companies, but it doesn't necessarily manifest as higher prices.
Speaker 3: In fact, it maybe lower prices, and it may be
Speaker 3: or maybe there's something not priced at all, like right,
Speaker 3: none of us pay Facebook directly or whatever it is
Speaker 3: some of these big social media giants, And so I
Speaker 3: think that has probably contributed to some extent for like,
Speaker 3: how do we address market power through outside the lens
Speaker 3: strictly of consumer prices?
Speaker 2: Absolutely, And the other thing just going back to shipping.
Speaker 2: It feels like anti trust is also potentially getting more
Speaker 2: attention in the context of supply chain resiliency. Right, So, yes,
Speaker 2: you can have high prices because of a monopoly that
Speaker 2: dominates a particular industry, but you could also have a
Speaker 2: situation where if something happens, if there's a choke point
Speaker 2: on that business, as we've seen a number of times
Speaker 2: in recent years, that it creates a vulnerable for the
Speaker 2: entire economy. So all of this got me thinking, you know,
Speaker 2: clearly there is an impact from antitrust on the overall
Speaker 2: shape and functioning of the economy, and you see that
Speaker 2: kind of burst into the policy debate every once in
Speaker 2: a while. But I really wanted to dive into how
Speaker 2: do you start to judge the effects of corporate concentration
Speaker 2: on the overall economy? And I have the perfect guest
Speaker 2: for you, Joe Great, We're going to be speaking to
Speaker 2: someone whose day job is basically exactly this. We're going
Speaker 2: to be speaking with Joanna Marinesque. She is the principal
Speaker 2: economist at the Department of Justice's Antitrust Division, also a
Speaker 2: professor at the University of Pennsylvania. Joanna, thank you so
Speaker 2: much for coming on all thoughts.
Speaker 4: Thank you so much for having me.
Speaker 2: What does a principal economist at the DOJ actually do
Speaker 2: walk us through your sort of day to.
Speaker 4: Day absolutely so you know, in my day job, what
Speaker 4: we do is we investigate different companies for potential violation
Speaker 4: of the anti trust laws and so you know all
Speaker 4: these competition issues that you just talked about. And so
Speaker 4: as an economist, what I do there is I oversee
Speaker 4: the work of my whole team of PhD economists where
Speaker 4: they go and do data analysis in order to uncover
Speaker 4: the effects of anti competitive practices on all sorts of
Speaker 4: outcomes like prices and wages and the quality of products
Speaker 4: and so on and so forth. And we use both
Speaker 4: quantitative analysis as well as interviews and documents that we
Speaker 4: are able to get from the companies like emails, to
Speaker 4: better understand how competition works in that particular case and
Speaker 4: whether there is in fact a sign of anti competitive behavior.
Speaker 3: So we talked about in the intro the sort of
Speaker 3: antitrust thinking, maybe widening the aperture of where you would
Speaker 3: look to find evidence of uncompetitive behavior beyond perhaps just
Speaker 3: consumer prices. What type of data are you looking when
Speaker 3: you talk about your going shifting through all this data
Speaker 3: to look for evident what are the types of data
Speaker 3: that you might look at and what might be I guess,
Speaker 3: the signatures of a company or an industry in which
Speaker 3: anti competitive actions are a problem.
Speaker 4: So there are two main types of data that I
Speaker 4: would point to. The first one is on market shares,
Speaker 4: so you look at the share of the companies in
Speaker 4: their market. So this could be a labor market or
Speaker 4: a product market. So you know, if a company has
Speaker 4: a high share and merges with another company that also
Speaker 4: has a high share, then that's likely to raise anti
Speaker 4: competitive concerns in the sense that prices or wages might
Speaker 4: be affected in a bad direction. So that's one way
Speaker 4: that we look at things again, calculating market shares, and
Speaker 4: so that's for one approach to looking at potential for
Speaker 4: anti competitive harm. And we can also talk about dominant firms,
Speaker 4: so firms that have monopoly power. That's also one of
Speaker 4: ways to measure it is through market shares. And then
Speaker 4: the second way is looking at what we called head
Speaker 4: to head competition, So how much do firms directly compete
Speaker 4: with each other? And this would be found in things
Speaker 4: like they are called win loss data. So when you
Speaker 4: look at sales data, you're looking at what company you
Speaker 4: lost your business too. And that would show if you
Speaker 4: often lose business to another company that now you're trying
Speaker 4: to merge with. Well, once you're merging, there's no longer
Speaker 4: going to be that competition, the intense competition between the two.
Speaker 4: And so that's the second like broad category of data.
Speaker 4: And there's similar data for workers. If you constantly lose
Speaker 4: your workers to your competitor and now you're merging, that
Speaker 4: competition is going to be lost.
Speaker 1: Oh that's really interesting.
Speaker 2: So something like that win loss data, how would you
Speaker 2: actually access that? Where does that come from?
Speaker 4: So that comes directly from the company's data. So we
Speaker 4: because you know we're the Department of Justice, if you're
Speaker 4: under investigation with the companies must send us their data,
Speaker 4: not any data, but of course the data that's needed
Speaker 4: for the investigation that concerns the specific concern we have
Speaker 4: with potential adverse effects on competition. So companies send us
Speaker 4: the data, whether it's again on the product for labor markets,
Speaker 4: it would be data from things like an applicant tracking
Speaker 4: system where they see where people are coming from. So
Speaker 4: that can also allow us to know where they're hiring
Speaker 4: employees from and therefore trace back the competition for labor.
Speaker 2: So that sort of data you would get that once
Speaker 2: an investigation had already been started. Talk to us about
Speaker 2: identifying potential investigations and what sort of information and data
Speaker 2: you would be looking at there, or maybe you're looking
Speaker 2: at something like the overall impact on the labor market
Speaker 2: or prices, which we've already discussed.
Speaker 4: Right, So for mergers, that's sort of the bread and butter.
Speaker 4: There is requirement for companies to file so called HSR
Speaker 4: forms for any transaction that's above some threshold, and so
Speaker 4: in those forms they give us some basic information about
Speaker 4: why they're seeking to merge, you know, what markets this
Speaker 4: might affect, and so on and so forth. And actually
Speaker 4: we now have new proposed additional information on labor so
Speaker 4: that it's easier to look at potential labor market effects.
Speaker 4: So based on that, there's an initial screening to see
Speaker 4: if we think that there might be potentially anti competitive
Speaker 4: effects from the merger. Then you know, there's an initial
Speaker 4: investigation phase and basically it goes from step to step
Speaker 4: until we are satisfied that it's likely not going to
Speaker 4: substantially lessen competition or it could end up in a
Speaker 4: lawsuit to try to block the merger if after having
Speaker 4: done a lot of analysis and data and interviews, we
Speaker 4: conclude that there's a substantial risk that the transaction, the merger,
Speaker 4: would lessen competition.
Speaker 3: Not necessarily a specific merger or an example, but just
Speaker 3: what would be a style type of something. You know,
Speaker 3: imagine company widget company A wants to merge with widget
Speaker 3: company B. They fill out this hs R form for you,
Speaker 3: what might be an example of something that shows up
Speaker 3: that crosses some threshold and in fact, is there a
Speaker 3: threshold like is there a level of X or Y
Speaker 3: in which like the red flag goes off, or is
Speaker 3: there some level of subjectivity walk us through like looking
Speaker 3: at that data when the data flashes some alarm to
Speaker 3: take this is not a good deal.
Speaker 4: So the main there are many, of course considerations that'd
Speaker 4: be hard to go through here, but one of the
Speaker 4: main things is the market shares. Okay, so if we
Speaker 4: have some evidence that these companies are competing in some
Speaker 4: market for some widgets, some specific widgets, so that's a
Speaker 4: specific product market, let's say, and if both of those
Speaker 4: companies have a high enough market share, that raises alarm
Speaker 4: and in the merger guidelines. So we have guidelines where
Speaker 4: we tell everybody this is public. You can go see them.
Speaker 4: They are brand new. We just put them out twenty
Speaker 4: twenty three Merger Guidelines. It tells you exactly what that
Speaker 4: threshold is. So what must your share be for us
Speaker 4: to conclude that there is a risk that competition might
Speaker 4: be hurt in this merger. And again, the general principle
Speaker 4: is that the two companies must have a high enough
Speaker 4: share in the market. So basically the market we call
Speaker 4: it concentrated, so there's few companies, each one has a
Speaker 4: large share. And further, we require that after the merger,
Speaker 4: the share of the two companies combined increases enough that
Speaker 4: it threatens competition. So that's really a key screening tool
Speaker 4: that we use, and that's going to play an important role,
Speaker 4: you know, as we go on with the investigation, and
Speaker 4: why are shared is important. They are important as an
Speaker 4: indicator of how anti competitive effects could happen. And this
Speaker 4: could be either through a reduction in what we call
Speaker 4: again competition direct competition for customers or for workers, or
Speaker 4: it could also be through potentially an increased risk of
Speaker 4: collision that whether explicit or implicit. The few actors they
Speaker 4: are in the market, and the easier it is for
Speaker 4: them to agree, let's say to you know, increased prices
Speaker 4: a little bit or let's say keep wages down a
Speaker 4: little bit more, something like that.
Speaker 2: What happens in a non competitive economy? Walk us through
Speaker 2: the sort of side effects of having high corporate concentration.
Speaker 4: Yeah, so there are many adverse effects, but broadly, some
Speaker 4: of these effects are higher prices, lower wages is less innovation,
Speaker 4: so you know, just broadly, and lower product quality, lower
Speaker 4: wage quality. So, for example, for the labor market, if
Speaker 4: we just take that as an example, because of a
Speaker 4: lack of competition, so if you're an employee and you
Speaker 4: don't have anywhere else to go, that would be a
Speaker 4: good firm that you would like. Similarly, just as well
Speaker 4: as your current employer. That means that the employer can
Speaker 4: pay you less because where are you going to go?
Speaker 4: And so you know, I have a paper, for example,
Speaker 4: and others have written related academic papers, and you can
Speaker 4: show that if we got rid of this lack of competition,
Speaker 4: wages may increase by as much as twenty percent on average.
Speaker 4: You know, in the extreme case that we could, you know,
Speaker 4: without all issues with competition in the labor market. Now,
Speaker 4: if you look at the product market, so you know
Speaker 4: there's a lack of competition in various markets for various widgets.
Speaker 4: Not only that will increase prices, reduce quality, and reduce
Speaker 4: consumer choice, reduce innovation, but interestingly, that will also have
Speaker 4: an adverse effect on workers, which is an indirect effect
Speaker 4: because when you have a monopoly, a monopoly makes less stuff.
Speaker 4: They produce less widgets, fewer widgets, and in order to
Speaker 4: produce fuel widgets, well, that also means fuel widgets means
Speaker 4: you need fewer workers to produce the wigets. So there's
Speaker 4: a less demand for labor, less demand for workers. So
Speaker 4: therefore that reduces employment opportunities. And there's really cool new
Speaker 4: academic work that's still work in progress by Tanya Babina
Speaker 4: and co authors suggesting that when the anti trust authorities
Speaker 4: go in and enforce the anti trust law and stimulate
Speaker 4: competition the product market, you see an increase in employment
Speaker 4: as business flourishes, and they also need more workers to
Speaker 4: produce whatever it is that they're producing.
Speaker 3: One of the arguments that you know, one thing that
Speaker 3: can theoretically happen. I don't know if it happens in practice.
Speaker 3: But one thing that can theoretically happen is that two
Speaker 3: companies can combine and become more efficient, and that means
Speaker 3: that they have economies of scale, and maybe they can
Speaker 3: lower prices. Maybe that scale brings consumer benefits with the
Speaker 3: lower prices, et cetera. From an economist perspective, I'm sure
Speaker 3: there are many instances where companies say that that's what
Speaker 3: will happen, and it seems at least possible. Is it
Speaker 3: possible in your view that concentration can lead to better
Speaker 3: consumer outcomes, either a from a price perspective or from
Speaker 3: a here's a very powerful company that then becomes a
Speaker 3: wage ceter or you just sort of would you be
Speaker 3: per se skeptical of those claims.
Speaker 4: So, you know, in general, as with every claim where
Speaker 4: you know the companies have an interest in making that claim,
Speaker 4: we need to examine it, you know, with fairness and
Speaker 4: with evidence. And you know, if you look at the
Speaker 4: merger Guidelands, there's a whole section on efficiencies, recognizing that
Speaker 4: that's a possibility, but we also ask that those efficiencies,
Speaker 4: if claimed, be well documented, you know, clearly articulated, verified
Speaker 4: by outside experts, so that we can start to potentially
Speaker 4: consider them, and we find that oftentimes that's just not
Speaker 4: the case. And so you know, again it's all a
Speaker 4: fact based investigation and you have to look at it.
Speaker 4: But that's certainly something that we consider in the holistic
Speaker 4: assessment of what's going to happen. Since it's a predictive exercise,
Speaker 4: we have to assess the risk. We take that into
Speaker 4: account as one element.
Speaker 3: Just to press you on this part further, as an
Speaker 3: economist coming to the table and there are other people,
Speaker 3: there are lawyers or others at the table, what are
Speaker 3: some of the tools in your arsenal that you might use,
Speaker 3: or tools in your toolbox per se, that you might
Speaker 3: use to make such a prediction to evaluate claims of
Speaker 3: economies of scale and such things.
Speaker 4: So what we essentially, it's important to note that it's
Speaker 4: not up to us the Department of Justice, to make
Speaker 4: that point. It's rather that the companies must be able
Speaker 4: to prove with some evidence that these efficiencies are likely
Speaker 4: to result and be not only that there are efficiency
Speaker 4: at all, which might well be the case, but that
Speaker 4: they are sufficiently substantial that they will negate the anti
Speaker 4: competitive effects that we fear, and so and of course,
Speaker 4: the specifics against specific But what's really important is not
Speaker 4: just to show that there are some efficiencies, but that
Speaker 4: they are again substantive enough that the initial concern that
Speaker 4: we had for all the adverse anti competitive effects is
Speaker 4: likely not to materialize because you know, those efficiencies make
Speaker 4: the market so much more competitive. But again the burden
Speaker 4: of proof in terms of who must show that that's
Speaker 4: the economists of the other side.
Speaker 2: So one of the more interesting cases that the DOJ
Speaker 2: took on over the past because it was a few
Speaker 2: years since it started, but the Penguins acquisition of Simon
Speaker 2: and Schuster, and part of this is media naval gazing
Speaker 2: because it involves the publishing industry, and if you read
Speaker 2: some of the complaints and the other documents around this,
Speaker 2: there is just oodles and oodles of information on like
Speaker 2: the actual numbers behind publishing and how they come up
Speaker 2: with things like author advances, how much they spend on marketing.
Speaker 4: Stuff like that.
Speaker 2: But walk us through the economic lessons of a case
Speaker 2: like that, because there seem to have been some trade
Speaker 2: offs in that particular action.
Speaker 4: So you know, I was really excited to see that case.
Speaker 4: This was ongoing when I arrived in my job at
Speaker 4: the division and just to table sat a little bit.
Speaker 4: That case was a case where Penguin Random House was
Speaker 4: seeking to merge with another big publisher, Simon and Schuster,
Speaker 4: and we always first look at competition in this industry,
Speaker 4: and in this case were interesting competition for authors. So
Speaker 4: you know this big publisher publishing houses, they are trying
Speaker 4: to buy the rights to author's books, and so for
Speaker 4: big name authors, they're on that many publishing houses. In fact,
Speaker 4: there are only five so called big five publishing companies
Speaker 4: that vuy typically for books by famous authors. And so
Speaker 4: we focus specifically on what we called anticipated top selling books,
Speaker 4: which were books that would get an advance of two
Speaker 4: hundred and fifty thousand dollars or more. So we're talking
Speaker 4: here about you know, likely big selling books. And so
Speaker 4: in that market again for those big big books, Penguin
Speaker 4: Random House had the market share there. We got market share,
Speaker 4: remember we talked about that before, of thirty seven percent
Speaker 4: and Simon and Schuster twelve percent, and so you can
Speaker 4: see that together after the merger, if it had happened,
Speaker 4: they would essentially have half of that market. And so
Speaker 4: that's like a really significant change in market shares. That
Speaker 4: would give these publishing houses significant market power. And what's
Speaker 4: the market power here, it's the market power over authors.
Speaker 4: When authors are shopping around the manuscript to find a
Speaker 4: publisher that they like that gives them good conditions. Again,
Speaker 4: that's what they do. They shop around and they make
Speaker 4: competition play who's giving me the best terms? And once
Speaker 4: these publishing houses would have merged, that would remove an
Speaker 4: option for the authors to get a better deal for
Speaker 4: their books. And so therefore we predicted that they would
Speaker 4: get lower advances, and that would therefore damage competition in
Speaker 4: that market for the author's work. And this is the
Speaker 4: judge agreed with us. And so this is the first
Speaker 4: merger that was blocked primarily on a theory of labor
Speaker 4: market power, where those publishing houses would exercise power over
Speaker 4: the labor of the authors in this specific case, is.
Speaker 3: There a you know you mentioned okay, a company with
Speaker 3: thirty seven percent market share want to merge with twelve
Speaker 3: percent market share almost fifty percent? Is there a number
Speaker 3: in which this is too much? Does it vary by industry? Like,
Speaker 3: where is this threshold exist such that you could say, okay,
Speaker 3: this is an okay level of market power or this
Speaker 3: is too much.
Speaker 4: Right, So that's in the merger guidelines. We have a
Speaker 4: famous you know, this is nerdy nerdy, but we have
Speaker 4: an index try The HHI is actually the Herd fineral
Speaker 4: Hershman index that essentially boils down to market shares. So
Speaker 4: if the market shares in the market are generally high enough,
Speaker 4: you're going to have a market that's already we call
Speaker 4: it highly concentrated. And then from there, if the merger
Speaker 4: is going to increase it sufficiently in this concentration, making
Speaker 4: the market even more concentrated with fewer players, then we
Speaker 4: think that it, you know, presumptively, is going to cause
Speaker 4: an anti competitive effect. And this, you know, this is
Speaker 4: this is something that you can calculate, and the thresholds
Speaker 4: are there in the merger guidelines.
Speaker 2: Wait, so, speaking of calculations and nerding out, when it
Speaker 2: comes time to try to predict the effect of this
Speaker 2: type of consolidation on advances for authors and their proposed books,
Speaker 2: presumably you go about actually modeling that in one way
Speaker 2: or another. How do you do something like that for publishing,
Speaker 2: which is kind of a notoriously opaque industry in many ways.
Speaker 4: That's right, So, you know, as I was saying, it's
Speaker 4: always very fact specific, and actually one of the coolest
Speaker 4: things that I've learned by being at the division is
Speaker 4: just the very many different details of each industry that
Speaker 4: you know, as an academic, you don't access this level
Speaker 4: of detail, you know, or manage as a journalist. If
Speaker 4: you could get all the you know, various emails and
Speaker 4: all these documents about what's really going on, it's really juicy.
Speaker 4: So but essentially here in this case, there's a process
Speaker 4: of bargaining and shopping around the manuscripts, and there's various
Speaker 4: ways how this could happen, but typically it's some sort
Speaker 4: of auction like format, and so therefore our expert in
Speaker 4: this case we work with an outside economic expert who
Speaker 4: does some of the analysis, and so he modeled an
Speaker 4: auction style situation where those firms, now instead of each
Speaker 4: bidding independently, would be together and calculated. You know, the
Speaker 4: fact that it would likely result in a significant decrease
Speaker 4: in what the authors were going to be able to
Speaker 4: get for their books.
Speaker 3: You know, one thing in staying with the books example,
Speaker 3: but maybe it's not the best example. Another element of
Speaker 3: these fights is fights over the definition of what constitutes
Speaker 3: a market, and maybe in books, it's kind of clear.
Speaker 3: We're talking about books and there's five big publishers, and so, okay,
Speaker 3: there's an advance and everything. But one could theoretically make
Speaker 3: the argument that the market is more than just five
Speaker 3: book publishers. And we live in an age of social
Speaker 3: media and writers maybe not doing a book, maybe doing
Speaker 3: a deal with Netflix and turning it into a documentary
Speaker 3: or other vehicles that are not precisely booked, but that
Speaker 3: may be a vehicle for an author or researcher or
Speaker 3: writer to get there out. Where does the fight over
Speaker 3: what constitutes the market itself occur or when does that occur?
Speaker 4: Well, you're really pointing the you know, putting your finger here.
Speaker 4: You're putting your finger on a fundamental question in those
Speaker 4: anti trust cases, which is what's the market. And importantly
Speaker 4: it's it's not like there is the market, it's we
Speaker 4: have to show a relevant market based on how competition works.
Speaker 4: And so here we define the market as this anticipated
Speaker 4: stop selling books two hundred and fifty k or more.
Speaker 4: But again you could say, well, they could self published
Speaker 4: on published on Amazon, right, and so that's where the
Speaker 4: critical question becomes, Yes, but is this other way of
Speaker 4: publishing a reasonable substitute from the point of view of
Speaker 4: those authors. That's really a critical question that we go
Speaker 4: about asking and for that we use a tool, again
Speaker 4: very nerd. It's called the hypothetical monopsonist test. And so
Speaker 4: what this asks is whether a hypothetical publishing house that
Speaker 4: would become a monopsist, meaning that they would be the
Speaker 4: only publishing house, not five Big five, the only one,
Speaker 4: would they be able to impose a small but significant
Speaker 4: reduction in the advances that are paid to these authors.
Speaker 4: And if we find that that would likely happen, that
Speaker 4: means that the market is well defined. And basically what
Speaker 4: that boils down to is authors just don't have other
Speaker 4: viable options, other equivalent options outside of this market.
Speaker 2: So you mentioned looking at various industries, and I can
Speaker 2: only imagine how interesting that must be with the amount
Speaker 2: of data, first person data that you that you get
Speaker 2: to see. But one thing I was wondering is, you know,
Speaker 2: you jump from sort of industry to industry. So I
Speaker 2: think in recent times you've looked at publishing, which we
Speaker 2: just discussed, You've looked at nursing, You've looked at things
Speaker 2: like poultry processing, and also video games, can you maybe
Speaker 2: single out one of those that was most interesting to
Speaker 2: you or one where you've learned something new about how
Speaker 2: that particular industry worked.
Speaker 4: For sure, I think one of the coolest cases I've
Speaker 4: gotten to work on. And my kids got super excited
Speaker 4: about this because they played a lot of video games.
Speaker 4: Concerned video game tournament, the Overwatch League, So this is
Speaker 4: organized by Activision Blizzard, so that was like a really
Speaker 4: cool case. And what happened there is that it's really interesting.
Speaker 4: So they have professional video game players who get paid
Speaker 4: to play video games. I'm sure that's the dream for
Speaker 4: some people. And and so what was happening there is
Speaker 4: that they had a soft cap on workers' salaries. So
Speaker 4: it was the case that each team could not pay
Speaker 4: more than a certain amount or else the additional pay
Speaker 4: above that amount would get taxed away. And so that
Speaker 4: meant that the teams had a strong incentive to keep
Speaker 4: the tool pay to the whole team, you know, not
Speaker 4: go above the threshold. And so what we said therefore
Speaker 4: is that this is reducing competition for workers. Here. The
Speaker 4: workers are video game players, professionals, they won't be able
Speaker 4: to get paid as much as they would get paid
Speaker 4: without this restriction right, because again the teams are strongly
Speaker 4: disincentivized from increasing the wages above this cap. And what's
Speaker 4: really interesting is that there are similar rules in other
Speaker 4: leagues like the NBA and the NFL, but those rules
Speaker 4: are collectively bargained and whereas in video games there's no unionization,
Speaker 4: and so these rules were imposed without the workers, in
Speaker 4: this case, the professional video game players being able to
Speaker 4: have a say in the rules. And so to me,
Speaker 4: that case is really interesting not only for the video
Speaker 4: game context, but also for the interesting consideration of what
Speaker 4: happens with collective bargaining or here the absence thereof and
Speaker 4: therefore our prediction that those rules you know, are imposed
Speaker 4: on workers without their consent and are going to significantly
Speaker 4: diminish their pay.
Speaker 3: Major League Baseball actually has an official legal exemption the
Speaker 3: anti trust law.
Speaker 4: Yes, and that's really important because historically one of the
Speaker 4: ways that the anti trust laws could be used is
Speaker 4: to bust the unions because the you know, the workers
Speaker 4: agree with each other. Normally they should compete, but they agree.
Speaker 4: And so it was decided from a policy perspective that
Speaker 4: there would be an exemption for union bargain bargaining that
Speaker 4: you know, the the unions cannot be sued by the
Speaker 4: Anti Trust Division for doing collective bargaining, and so that's
Speaker 4: why it's different. If there is a union is one thing.
Speaker 4: If there is no union, it's a different thing. And
Speaker 4: so in this case of the Overwatch League, you know,
Speaker 4: the company agreed not to do this again, you know,
Speaker 4: to limit the workers' pay because again there was no
Speaker 4: agreement with the worker through bargaining, but instead it was
Speaker 4: just imposed on workers against their will and would likely
Speaker 4: reduce wages that the workers are being paid.
Speaker 2: This might be a very theoretical question, but we've obviously
Speaker 2: been talking about the impact of concentration on prices and labor.
Speaker 2: Are there other effects where you could see a sort
Speaker 2: of anti trust argument playing out, like other consequences on
Speaker 2: the economy that might be worth looking at for sure.
Speaker 4: I think, you know, another aspect that we haven't touched
Speaker 4: upon as much but is innovation. And you know, innovation
Speaker 4: is really important and one of the you know, in
Speaker 4: order to create new jobs and new businesses. So you know,
Speaker 4: we really need innovation to grow, and that innovation can
Speaker 4: be really thwarted by anti competitive behavior by you know, big,
Speaker 4: big actors who monopolize markets. And so you know, for example,
Speaker 4: we have filed a lawsuit against Apple as an example,
Speaker 4: and you know, one of the arguments there is that
Speaker 4: Apple is preventing its users from switching to alternative smartphones
Speaker 4: and one of the ill effects of that is a
Speaker 4: reduction in innovation. So essentially, the big picture vision here
Speaker 4: I just want to make clear is that the anti
Speaker 4: competitive behavior decreases innovation. We're not saying that the company
Speaker 4: isn't innovating at all. It's more like if there was
Speaker 4: more competition, they'd be innovating more. So what does this
Speaker 4: mean intuitively, is if you're able to hold your audience
Speaker 4: captive as a company, you know, you're it's very hard
Speaker 4: for the customer to move away from your product. You
Speaker 4: just don't have the same incentive to make your product
Speaker 4: re good for the customer in order to keep them.
Speaker 4: Whereas if there's a lot of competition, well there's always
Speaker 4: a risk of losing the customer, And now you're really
Speaker 4: incentivized to work hard to innovate so that the customer
Speaker 4: wants to stay with you rather than switching to somebody else.
Speaker 2: Since you mentioned tech and Apple and innovation, there's a
Speaker 2: line of thinking in economics, which is that maybe the
Speaker 2: way we do official economic statistics at the moment isn't
Speaker 2: necessarily the best at capturing the new economy, for lack
Speaker 2: of a better word, like maybe productivity. It's harder to
Speaker 2: measure productivity improvements in something like a video game or
Speaker 2: a phone, or I don't know, a refrigerator that now
Speaker 2: comes with a bluetooth speaker or whatever. I'm curious if
Speaker 2: the same dynamic kind of exists in anti trust laws
Speaker 2: and enforcement. Does it feel to you like the current
Speaker 2: tools at your disposal are adequate to capture maybe some
Speaker 2: of the new anti trust challenges being thrown up by
Speaker 2: a more modern economy.
Speaker 4: Right, So, I think, you know, that's precisely why we
Speaker 4: created the or you know, we worked together with the
Speaker 4: FTC to put out the twenty twenty three merger guidelines.
Speaker 4: You know, we have taken to heart all of those
Speaker 4: new technological developments and you know, new ways of looking
Speaker 4: at old problems, and so, for example, you know, I
Speaker 4: mentioned innovation as being one important consideration, and in the
Speaker 4: merger guidelines, for example, we pay special attention to let's say,
Speaker 4: acquisition of nascent competitors where a dominant player might be
Speaker 4: buying a smaller company that is very promising and might
Speaker 4: come to eat their lunch, and so it really pay
Speaker 4: attention to that. And also with respect to labor, it's
Speaker 4: not all about wages, but we're also looking at things
Speaker 4: like working conditions. You know, how flexible the work is,
Speaker 4: maybe special hybrid arrangements, right, talking about technology that workers
Speaker 4: might really enjoy. If there's less competition for workers, there's
Speaker 4: less incentive for firms to come up with creative ideas
Speaker 4: of organizing work in ways that you know will make
Speaker 4: people happy and productive at work. So I think, you know,
Speaker 4: the new merger guidelines have really learned from recent developments
Speaker 4: in technology and you know, in the economics literature to
Speaker 4: look at a broader area of potential effects from anti
Speaker 4: competitive behavior that isn't just limited to prices, which is
Speaker 4: usually the bread and but of course we look at prices,
Speaker 4: but there's all these other aspects like you know, as
Speaker 4: I said, wages, but also innovation and the quality of jobs.
Speaker 3: When it comes to innovation, and you brought up the
Speaker 3: Apple case, so on the one hand, you could say
Speaker 3: it's anti competitive from an innovation standpoint because the frictions
Speaker 3: that they make make it hard for a user or
Speaker 3: a consumer to move from one type of smartphone to another.
Speaker 3: On the other hand, one could argue that actually it's
Speaker 3: good for innovation because if you pool a ton of
Speaker 3: users onto a single platform, then someone can build a
Speaker 3: product and have this huge, a wide swath of people
Speaker 3: that they can target, and that opens up anything. You
Speaker 3: mentioned big companies buying up small companies. Maybe that is
Speaker 3: anti competitive in one sense. But on the other hand,
Speaker 3: if small companies view an exit to a large company
Speaker 3: as a likely outcome and the alternative of an IPO,
Speaker 3: then maybe that funds the investment in more companies in
Speaker 3: the first place. So I guess what I'm asking is,
Speaker 3: how do you actually measure or is there a way
Speaker 3: to measure innovation or what are the tools you use
Speaker 3: to actually measure the effect of some corporate behavior of
Speaker 3: some deal on the amount of innovation, which seems like
Speaker 3: kind of a hard thing to strictly quantified.
Speaker 4: It's very hard to quantify directly, and so that's why
Speaker 4: we are relying on again industry specific documents. So, I mean,
Speaker 4: what you have to realize is, like we're talking here
Speaker 4: in the abstract, but in the concrete case, we have
Speaker 4: like like information.
Speaker 3: So what are the things that come up in the
Speaker 3: course of a case that you're like, Okay, this is
Speaker 3: useful data or this is signal that can tell us
Speaker 3: something about the net effect on innovation. That's something in
Speaker 3: the tech space would have.
Speaker 4: So like, for example, if we are looking at the
Speaker 4: concrete case and we are looking at let's say a
Speaker 4: dominant company and its practices, we often see evidence on
Speaker 4: smaller competitors that let's say there might be an anecdote
Speaker 4: where you know, we know that they brought a new
Speaker 4: product and the product in question was very popular, but
Speaker 4: let's say you know, the dominant firm made sure that
Speaker 4: the product cannot take off by imposing all sorts of restrictions.
Speaker 4: Because you know, there's all sorts of ways. It's very
Speaker 4: industry specific, but there are ways, and that's what we're
Speaker 4: going after. It's so called exclusionary practices. There are ways
Speaker 4: for the dominant companies to make sure that that new, upstart,
Speaker 4: cool product, you know, finds it hard to find a
Speaker 4: market and so and so that's what we really want
Speaker 4: to have our eyes wide open toward, is to be
Speaker 4: able to detect those kinds of behaviors and you know,
Speaker 4: if possible, curb it right. And again, extreme behavior would
Speaker 4: be to literally buy up that company that has the
Speaker 4: cool new product, you know, and maybe potentially do a
Speaker 4: killer acquisition, you know, just kill that product so that
Speaker 4: it never it never comes to comes to market. So
Speaker 4: there's all sorts of things that companies can do, and
Speaker 4: we have to be very vigilant about all these strategies.
Speaker 4: And companies often say, oh, but we are so great,
Speaker 4: we so innovative, and that's really missing the point because
Speaker 4: nobody said they're not innovative the big player. It's more
Speaker 4: about how much innovation is lost through their anti compantive behavior.
Speaker 4: The point is we could have even better stuff, yea,
Speaker 4: even better working conditions, even more innovation if there was
Speaker 4: more competition.
Speaker 3: So I just have one more question, and I've asked
Speaker 3: this before on conversation about anti trust, but I'm curious
Speaker 3: to get your perspective within the context of you know,
Speaker 3: we're this administration is undertaking a number of policy measures.
Speaker 3: People call it industrial policy, for example, and in some
Speaker 3: case it involves just giving one money, one company money,
Speaker 3: or a few companies money. And in theory that you know,
Speaker 3: that's a major advantage to them, let's say a competitor
Speaker 3: might not have. And so we're sort of at a
Speaker 3: time in which you know, we are sort of to
Speaker 3: some extent picking winners or picking candidates who could be
Speaker 3: winners depending on how they execute. Can you talk a
Speaker 3: little bit, maybe philosophically or from your perspective, how you
Speaker 3: see anti trust enforcement fitting in with the sort of broader,
Speaker 3: broader policy landscape in which the administration is not just
Speaker 3: sort of letting the invisible hand to determine who's going
Speaker 3: to win and who's going to build on, but it's
Speaker 3: actually shaping and guiding corporate behavior in multiple industries.
Speaker 4: HM. So I think what I can best say about
Speaker 4: this is that we work, you know, to foster competition
Speaker 4: given other you know, existing rules and constraints. So we
Speaker 4: take the other stuff as given, and you know, if
Speaker 4: there's rules out there, there's rules we don't. You know,
Speaker 4: we're not here to change legislation or anything like that,
Speaker 4: and we're looking at, hey, is there a competition problem
Speaker 4: within the existing rules, and we're going after that. So
Speaker 4: I think it's like just you know, each tool in
Speaker 4: its own sort of domain of application. There's many policy
Speaker 4: goals and you know, I don't want to comment about
Speaker 4: other policies outside us. What we do is given again,
Speaker 4: what every other I know. Actually a good example of
Speaker 4: this in labor again is the union topic. Right, So
Speaker 4: unions got an exception. We take that as a given.
Speaker 4: So we're not going to go after unions. You know,
Speaker 4: they they by legislation, and that's really important in democracy.
Speaker 4: If the legislature decided to make the law a certain way,
Speaker 4: that's how it is, and we respect that. And then
Speaker 4: we're asking, given that, you know, what other competition is there,
Speaker 4: and how might workers and consumers gain if we intervene
Speaker 4: in order to foster more competition. That would lead to
Speaker 4: again lower prices, more innovation, higher wages, better quality jobs.
Speaker 2: So just on this note, Joe kind of reminded me.
Speaker 2: But going back to the supply chain issue and the
Speaker 2: experience of the pandemic, I mean, I think there is
Speaker 2: a realization that concentration can have negative consequences in terms
Speaker 2: of overall resiliency of the system. So if you have
Speaker 2: one supplier of something that is strategically important and then
Speaker 2: there I don't know, a COVID outbreak in their factory
Speaker 2: or something like that, then you could have the entire
Speaker 2: supply of that good curtailed basically. And the other thing
Speaker 2: that seems to have happened recently is there's more recognition
Speaker 2: of the cascade effects in the economy. So economists like
Speaker 2: Isabella Weber have been working on this idea of systemically
Speaker 2: important sources of inflation or where you could get higher
Speaker 2: prices in one particular good that's a building block of
Speaker 2: a number of other things, and then that sort of
Speaker 2: flows through the entire economy. So I'm curious as someone
Speaker 2: who does this at the DOJ. This is your job,
Speaker 2: your day to day, is supply chain resiliency or kind
Speaker 2: of on your radar at all? Is that something that
Speaker 2: you would be looking at as well.
Speaker 4: I mean, I think one way that this intersects with
Speaker 4: our bread and butter concerns is through entry. So you know,
Speaker 4: we're always looking at in order to predict whether, let's
Speaker 4: say a merger is going to significantly affect competition in
Speaker 4: a negative way. So these two companies are merging, and
Speaker 4: is that going to increase prices, that going to reduce wages?
Speaker 4: One key question is once they merge, let's say they're
Speaker 4: trying to do something bad like increased prices. Are they
Speaker 4: going to be able to do so? And one way
Speaker 4: that they would be limited in that is by entry
Speaker 4: from other companies. If we strongly believe that, you know,
Speaker 4: this is a market that's very dynamic and there's a
Speaker 4: lot of entry, or on the opposite, it's a market
Speaker 4: that's not all dynamic. There hasn't been a new company
Speaker 4: that entered for the past twenty years. That factors into
Speaker 4: our reasoning. And I think this entry is related to
Speaker 4: some extent to this concern about resiliency, because you would
Speaker 4: think that an industry where it's very easy to enter,
Speaker 4: you know, it's very flexible, you would have also less
Speaker 4: of that other concern around resiliency versus and this is
Speaker 4: resiliency to monopoly, but it could potentially be residency to
Speaker 4: other things. So again, I think that entry consideration is
Speaker 4: really important to look at the specifics of the industry
Speaker 4: in terms of economies of scale or other barriers to
Speaker 4: entry that could occur, be there or not be there,
Speaker 4: And again it really depends on the specifics of the industry.
Speaker 2: All right, Johanna Marinescue from the DOJ, thank you so
Speaker 2: much for coming on our thoughts. That was absolutely fascinating.
Speaker 4: Thank you so much.
Speaker 3: Yeah, thank you so much.
Speaker 4: That was great, Joe.
Speaker 2: I'm so glad we did that episode because I remember,
Speaker 2: I think maybe both with Lena Khan from the FTC
Speaker 2: and then Jonathan Kanter from The DOJ, both of which
Speaker 2: we have had on the podcast. At this point, I
Speaker 2: think we were asking them questions about their research process
Speaker 2: and identifying, you know, potential targets for lawsuits and things
Speaker 2: like that. It was really interesting to hear the economists
Speaker 2: perspective on this totally.
Speaker 3: I like hearing about like all the different tools and
Speaker 3: forms and stuff like that, right, because one of the
Speaker 3: things that came up in some of our previous conversations
Speaker 3: is like, well some of it's like anecdotal, right, or
Speaker 3: some of it you hear things and you say, oh,
Speaker 3: you read something in the paper and you're like, hmm,
Speaker 3: something seems kind of weird here, or people are complaining.
Speaker 3: But then hearing about like specific tools, the type of
Speaker 3: data that gets collected. What was it the wind loss data?
Speaker 2: Yeah, and also that one form I can't remember.
Speaker 3: Yeah, I have it up on my computer right now,
Speaker 3: the HSR, the pre merger notification form that you have
Speaker 3: to fill out and that the onus is on the
Speaker 3: companies to sort of demonstrate preemptively that the merger is
Speaker 3: not going to worsen the competitive situation. I like hearing
Speaker 3: as you say about like all these different now, all
Speaker 3: of these different tactics and techniques and tools to actually
Speaker 3: how these things get evaluated.
Speaker 2: Yeah, and Yoanna is right that I would love to
Speaker 2: as a journalist, I would love to see that kind of.
Speaker 3: I wish, you know what, I wish we could subpoena
Speaker 3: up here. I think journalist should have subpoena power over
Speaker 3: our corporate data. I think that would only be fair.
Speaker 2: I guess we do have freedom of information requests, but
Speaker 2: it's not quite the same companies. The other thing I
Speaker 2: was thinking about, you know, I know you keep asking
Speaker 2: this question to various antitrust people about, you know, the
Speaker 2: the active industrial policy of the Biden administration versus questions
Speaker 2: over competition and things like that, and I think, you know,
Speaker 2: there is a tension there that I think is probably
Speaker 2: as yet unresolved.
Speaker 1: Yeah.
Speaker 4: I think so too.
Speaker 3: I mean it's interesting or maybe you know, one way
Speaker 3: to view it, like there is this tension. The other
Speaker 3: argument I think one could make is the fact that
Speaker 3: the US is to some extent, picking winners even further
Speaker 3: emphasizes the need to enforce anti trust and to so
Speaker 3: that you know, because once you've been selected as a winner,
Speaker 3: a candidate winner, so they're actually still competing rather than
Speaker 3: basically rent seeking. So maybe they go hand in glove
Speaker 3: more than I appreciate.
Speaker 2: Absolutely. Shall we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Oudlots podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy.
Speaker 3: Alloway and I'm Joe Wisenthal. You can follow me at
Speaker 3: the Stalwart. Follow our guest Joanna Maronescu. She's at m Joanna.
Speaker 3: Follow our producers Kerman Rodriguez at Kerman Erman, dash Ol
Speaker 3: Bennett a Dashbot, and Kelbrooks at Kelbrooks. Thank you to
Speaker 3: our producer Moses ONEm. For more odd Logs content, go
Speaker 3: to Bloomberg dot com slash odd Lots, where you have
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