WEBVTT - Beak Capitalism, Part 3: Un-Clucking the System 0:00:03.120 --> 0:00:08.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:11.760 --> 0:00:15.240 Joe, why did the chicken join the Revolutionary War? I 0:00:15.280 --> 0:00:17.400 have no idea, because it didn't want to be cooped 0:00:17.480 --> 0:00:18.560 up under British rule. 0:00:18.760 --> 0:00:22.239 Okay, but it sitting aside the terrible puns. Wasn't it 0:00:22.280 --> 0:00:23.119 really about taxes? 0:00:23.239 --> 0:00:23.479 Joe? 0:00:23.720 --> 0:00:26.760 Joe? Why did the colonial chicken refuse to pay British 0:00:26.840 --> 0:00:29.760 taxes because it didn't want to put all its eggs 0:00:29.800 --> 0:00:31.160 in King George's basket? 0:00:31.360 --> 0:00:32.120 Should I keep going? 0:00:32.720 --> 0:00:34.760 I'm good, I'm good, Thanks, I'm good, Okay. 0:00:34.760 --> 0:00:38.280 Fine. To understand chicken and the current landscape of the 0:00:38.360 --> 0:00:41.280 US economy and the companies in it, it helps to 0:00:41.280 --> 0:00:44.159 go back in time and revisit a few key moments 0:00:44.200 --> 0:00:45.080 in US history. 0:00:46.920 --> 0:00:51.559 Going back to the founding, Americans were actually suspicious of 0:00:51.640 --> 0:00:55.960 the power of large corporations. And one reason for that 0:00:56.160 --> 0:00:58.240 is that it used to be that the government would 0:00:58.280 --> 0:00:59.680 grant corporate charters. 0:00:59.760 --> 0:00:59.880 Right. 0:00:59.880 --> 0:01:02.320 There's this history in the United States before general and 0:01:02.360 --> 0:01:07.199 corporation statutes that corporations are really creatures of the state, 0:01:07.720 --> 0:01:10.319 and so there was always this suspicion that if they 0:01:10.400 --> 0:01:14.560 grew to be too powerful, the kind of abuse that 0:01:14.600 --> 0:01:17.480 they could bring to bear on the lives of ordinary 0:01:17.520 --> 0:01:19.039 people was really extensive. 0:01:19.160 --> 0:01:22.840 And so Doha Mecki is the Principal Deputy Assistant General 0:01:22.880 --> 0:01:25.679 in the Anti Trust Division of the Department of Justice. 0:01:25.880 --> 0:01:29.280 That's a long title. It means she's the second highest 0:01:29.319 --> 0:01:30.399 ranking official there. 0:01:30.920 --> 0:01:34.160 Today. The US government has a whole constellation of laws, acts, 0:01:34.240 --> 0:01:37.560 and agencies all aimed at ensuring that America's economy remains 0:01:37.640 --> 0:01:40.400 fair and competitive. One of the most important is where 0:01:40.440 --> 0:01:41.120 Doha works. 0:01:41.319 --> 0:01:44.600 The DOJ, and the Anti Trust Division is one component 0:01:44.680 --> 0:01:48.560 of many at the Justice Department. And our specific mandate 0:01:48.880 --> 0:01:52.840 is to enforce the anti trust laws and essentially to 0:01:53.040 --> 0:01:57.240 guarantee and vindicate the economic liberty of all Americans. And 0:01:57.280 --> 0:02:00.800 we do that by enforcing the federal and he trust laws, 0:02:01.080 --> 0:02:03.560 the best known of which are the Sherman Act and 0:02:03.600 --> 0:02:05.600 the Clayton Act, but you've. 0:02:05.400 --> 0:02:08.520 Probably heard of these before. The Sherman Anti Trust Act 0:02:08.600 --> 0:02:11.480 of eighteen ninety was famously deployed in the breakup of 0:02:11.520 --> 0:02:14.800 Standard Oil back in nineteen eleven, which is still probably 0:02:14.880 --> 0:02:17.520 the country's most well known anti trust case, and the 0:02:17.560 --> 0:02:21.440 Clayton Act arrived soon after that. But America's approach to 0:02:21.440 --> 0:02:24.960 antitrust has constantly changed over time, and. 0:02:25.040 --> 0:02:27.919 Chicken, with all its accusations of price gouging and unfair 0:02:28.000 --> 0:02:31.120 labor practices and just huge corporate concentration, seems to be 0:02:31.160 --> 0:02:34.480 a perfect poultry. Peatrie dish to experiment with some new 0:02:34.480 --> 0:02:35.920 ways of looking at antitrust. 0:02:40.960 --> 0:02:45.120 Welcome to Part three of Beak Capitalism, our ongoing exploration 0:02:45.280 --> 0:02:48.680 of the US economy through the medium of Chicken. In 0:02:48.720 --> 0:02:52.320 this episode, we're asking how we can solve some of 0:02:52.320 --> 0:02:57.000 the problems that Big Chicken creates. Can we actually uncluck 0:02:57.040 --> 0:03:14.799 the system? 0:03:15.040 --> 0:03:20.240 So a little bit of history. Actually, the relationship between 0:03:20.280 --> 0:03:24.120 agriculture and anti trust goes back to the beginning. Farmers 0:03:24.600 --> 0:03:28.320 were one of the big supporters of the Sherman Act, 0:03:28.360 --> 0:03:31.079 the first anti trust statue passed by Congress. 0:03:31.840 --> 0:03:35.160 Michael Cati's is Deputy Assistant Attorney General for the Anti 0:03:35.160 --> 0:03:38.640 Trust Division at the DOJ. He works alongside Doha, but 0:03:38.720 --> 0:03:41.480 recently he spent a lot of time focused on agriculture 0:03:41.480 --> 0:03:43.600 and Act because it turns out the DOJ has a 0:03:43.600 --> 0:03:45.600 long history with the food industry. 0:03:45.880 --> 0:03:48.280 And early on the Department of Justice brought a number 0:03:48.280 --> 0:03:52.480 of cases against meat packers and along about nineteen fourteen, 0:03:52.760 --> 0:03:55.680 Congress looked at the way the Supreme Court was handling 0:03:56.120 --> 0:03:58.560 that Act and was not happy. So they passed the 0:03:58.600 --> 0:04:01.600 Clayton Act, which was supposed to broadened the enforcement powers 0:04:01.640 --> 0:04:05.480 of the Division. They also created the Federal Trade Commission, and. 0:04:05.920 --> 0:04:08.920 The first thing the President asked the newly created Federal 0:04:08.960 --> 0:04:12.520 Trade Commission to do was study the meat packing industry. 0:04:12.880 --> 0:04:16.440 Fast forward to nineteen twenty, the FTC issues a three 0:04:16.520 --> 0:04:20.960 volume report documenting everything going wrong in meat packing markets, 0:04:21.040 --> 0:04:25.719 both collusion and deception, and at the same time, the 0:04:25.800 --> 0:04:29.640 Justice Department files an anti trust case that breaks up 0:04:29.839 --> 0:04:33.839 the packing industry. And yet Congress still wasn't happy. So 0:04:33.920 --> 0:04:37.760 then in nineteen twenty one, Congress, now under a strong 0:04:37.839 --> 0:04:41.320 Republican and a fairly conservative Congress, passes the Packers and 0:04:41.360 --> 0:04:47.000 Stockyards Act, which really said, look, we are concerned that 0:04:47.400 --> 0:04:51.800 the people who ranch and grow hogs are always going 0:04:51.920 --> 0:04:55.520 to be facing very large, powerful interests, and we want 0:04:55.560 --> 0:04:59.360 to give them extra protections. And so was the anti 0:04:59.400 --> 0:05:02.760 trust laws focus solely on competition. The Packers in stock 0:05:02.760 --> 0:05:08.039 Guards Act actually provided explicit protection for ranchers, hot growers, 0:05:08.080 --> 0:05:14.440 eventually chicken growers from deception on fairness discrimination, you're. 0:05:14.240 --> 0:05:17.000 Going to want to remember the Packers in Stockgards Act. 0:05:17.920 --> 0:05:19.800 It's been deployed quite a bit lately in the name 0:05:19.839 --> 0:05:23.600 of anti trust enforcement in agriculture and chickens especially. 0:05:23.640 --> 0:05:27.800 But chicken also says something about fairness in business more generally. 0:05:28.440 --> 0:05:31.719 There are many lessons to be drawn from anti trust 0:05:31.880 --> 0:05:35.480 enforcement in the chicken industry that I think have made 0:05:35.600 --> 0:05:39.640 us better enforcers and that have really brought into focus 0:05:39.760 --> 0:05:43.359 the expansiveness of our mission. Again, anti trust is a 0:05:43.360 --> 0:05:47.360 big mandate. It rhymes with a lot of core democratic 0:05:47.480 --> 0:05:50.040 values that all of us hold as citizens of this country. 0:05:50.480 --> 0:05:53.440 And so to bring that down to the level of 0:05:53.600 --> 0:05:57.240 enforcement anti trust enforcement at the market level. What we 0:05:57.320 --> 0:06:01.359 see in the chicken industry is that this outsourcing of 0:06:01.480 --> 0:06:06.520 risk is actually a business model that many kinds of 0:06:06.560 --> 0:06:11.880 companies employee. For example, a ride sharing company right that 0:06:12.040 --> 0:06:18.360 outsources risk investment and recoups a lot of the profit 0:06:18.880 --> 0:06:23.320 for simply matching writers and passengers. 0:06:22.680 --> 0:06:23.400 For example. 0:06:23.920 --> 0:06:28.440 There are other examples in the real estate industry, in 0:06:28.520 --> 0:06:32.559 banking again where you see this sort of outsourcing of risk, 0:06:33.240 --> 0:06:38.600 and it raises fundamental questions about how those markets are functioning, 0:06:39.040 --> 0:06:45.400 whether consumers are ultimately getting the kind of choices, good value, innovation, 0:06:45.720 --> 0:06:48.440 and other things that we really lean on the antitrust 0:06:48.520 --> 0:06:49.960 laws to deliver. 0:06:51.400 --> 0:06:53.479 All of this raises the question of what exactly we 0:06:53.600 --> 0:06:57.640 mean by anti trust and what exactly is anti competitive behavior. 0:06:57.880 --> 0:07:01.360 Yeah, we should talk about that because for years, competition 0:07:01.480 --> 0:07:04.480 was judged on the basis of a consumer welfare standard. 0:07:04.960 --> 0:07:08.560 What that means was, for example, if two companies decided 0:07:08.600 --> 0:07:11.960 to merge and prices for consumers ended up being lower 0:07:12.000 --> 0:07:15.520 as a result, then that was generally fine. Monopoly was 0:07:15.560 --> 0:07:19.040 only a really bad thing if it led to higher prices, right. 0:07:18.920 --> 0:07:21.920 Because pretty much everyone likes cheap chicken, and at a minimum, 0:07:21.960 --> 0:07:24.640 you could argue that concentration in the poultry industry and 0:07:24.720 --> 0:07:27.680 industrialization of chicken and all the scale that comes with 0:07:27.760 --> 0:07:30.360 it has created a lot more white meat to go around. 0:07:30.800 --> 0:07:34.880 But in recent years, policymaker's approach to anti competitive behavior 0:07:35.160 --> 0:07:38.840 has started to change a lot. Not only are they 0:07:38.880 --> 0:07:42.600 looking beyond simple chicken supply, but they're also arguing that 0:07:42.640 --> 0:07:44.920 it's not clear that all of this is leading to 0:07:45.000 --> 0:07:46.840 better outcomes for consumers either. 0:07:47.320 --> 0:07:50.600 One of the problems in anti trust enforcement generally is 0:07:50.640 --> 0:07:54.280 people said, well, you know, if you have power on 0:07:54.320 --> 0:07:58.040 the buying side that just will get passed down the 0:07:58.080 --> 0:08:02.400 line to the ultimate consumers. That's actually wrong, right. The 0:08:02.440 --> 0:08:06.320 concern here is if the middle person has the power, 0:08:06.480 --> 0:08:09.920 they're going to extract taxes up and down the line. 0:08:10.760 --> 0:08:15.280 And it's not the case that you would expect somebody 0:08:15.320 --> 0:08:19.120 if there are forcing prices down through any competitive means, 0:08:19.120 --> 0:08:21.240 that they're going to pass that along. And just as 0:08:21.240 --> 0:08:23.480 a sort of general example, think about it this way. 0:08:23.640 --> 0:08:27.360 The way you exert monopoly power on the buying side, 0:08:27.400 --> 0:08:31.480 which we call monopsony power, right, is you actually buy less, 0:08:32.040 --> 0:08:36.439 so you're reducing demand so that prices go low. Well, 0:08:36.480 --> 0:08:40.559 if they're buying less, they're selling less, and so that 0:08:40.600 --> 0:08:45.400 can't help consumers. Consumers want more supply, more competition, So 0:08:45.559 --> 0:08:48.720 either it has sort of no effect downstream, or it 0:08:48.840 --> 0:08:52.560 actually contributes to higher prices. So when we go after 0:08:52.640 --> 0:08:57.320 monopsony power in the agricultural industry and are successful, it 0:08:57.360 --> 0:09:03.440 benefits both and often the consumer. 0:09:03.240 --> 0:09:06.760 Joe ring the monopsony clackson monopsony. 0:09:08.160 --> 0:09:10.200 It comes up a lot nowadays. To put it simply, 0:09:10.400 --> 0:09:13.000 it's basically a market structure where there's only one big buyer, 0:09:13.120 --> 0:09:15.559 whether that's of labor widgets, whatever. 0:09:15.800 --> 0:09:18.440 So if you're a chicken farmer in Rhode Island, for instance, 0:09:18.720 --> 0:09:21.360 there might be just one poultry processor that you can 0:09:21.400 --> 0:09:24.680 sell your chickens too, and that company might be able 0:09:24.720 --> 0:09:25.880 to dictate its terms. 0:09:26.240 --> 0:09:28.800 So, where monopoly is all about a single seller that 0:09:28.920 --> 0:09:32.800 controls supply of a particular product or service, monopsony is 0:09:32.800 --> 0:09:36.160 about what's happening on the buy side. Here's Doha. 0:09:36.240 --> 0:09:40.840 It's this idea of deep power that is exercised on 0:09:40.960 --> 0:09:43.680 the buy side of the market. And this is actually 0:09:43.760 --> 0:09:46.520 very old economics, right. This is a theory that was 0:09:46.520 --> 0:09:50.240 pioneered by Joan Robinson in the nineteen thirties, and so 0:09:50.880 --> 0:09:53.800 there's this idea that buyer power might be harmless. But 0:09:53.880 --> 0:09:58.440 we've known for almost a century empirically that you know, 0:09:58.520 --> 0:10:01.360 if a buyer chooses an in along a supply curve 0:10:01.480 --> 0:10:04.640 and then is able to exercise the power to drop 0:10:04.800 --> 0:10:09.439 the value of that input, maybe in the short run 0:10:09.600 --> 0:10:13.120 you get lower prices or expanded output, but if you 0:10:13.360 --> 0:10:17.719 drop the value below a reservation wage, right, especially when 0:10:17.720 --> 0:10:21.120 you're talking about labor markets, which a lot of producer 0:10:21.200 --> 0:10:25.560 and grower economies you know, are basically labor markets, that 0:10:25.840 --> 0:10:32.400 you will eventually destroy incentives to continue making that input, 0:10:32.800 --> 0:10:35.520 and so in the long run you will actually get 0:10:35.559 --> 0:10:40.320 contraction in a market that is classical monopsony power that 0:10:40.440 --> 0:10:43.760 is empirically sound, and that has been I think upheld 0:10:43.760 --> 0:10:46.240 by a lot of economists for a very long time. 0:10:49.040 --> 0:10:51.680 There is another flavor of monopsony, of course, which is 0:10:51.800 --> 0:10:55.679 just the abuse of bargaining leverage. If you fear termination 0:10:56.360 --> 0:11:00.960 of a contract that your buyer has any negotiated with you, 0:11:01.200 --> 0:11:04.840 if you fear this is the same thing with non compete, right, 0:11:05.240 --> 0:11:08.080 This is the same sort of economic idea that if 0:11:08.120 --> 0:11:11.800 you have lower bargaining leverage, you are likely to do 0:11:11.880 --> 0:11:15.560 everything you possibly can to be more compliant with the 0:11:15.679 --> 0:11:19.079 terms that are imposed by the purchaser of whatever product 0:11:19.200 --> 0:11:22.000 or service that you are selling. And so that just 0:11:22.160 --> 0:11:26.240 maps on almost perfectly with the chicken industry. And what 0:11:26.360 --> 0:11:30.199 is really I think most fascinating in the chicken industry 0:11:30.240 --> 0:11:32.839 and other types of labor markets is that you can 0:11:32.880 --> 0:11:38.480 actually exercise power and abuse bargaining leverage at much lower 0:11:38.800 --> 0:11:44.560 concentration thresholds, which is a really interesting and fruitful area 0:11:44.559 --> 0:11:47.840 of economic research that has been produced over the last 0:11:47.840 --> 0:11:49.000 five to ten years. 0:11:49.679 --> 0:11:53.640 So, armed with that wider definition of competitive pressures, the 0:11:53.760 --> 0:11:57.520 DOJ has gone on the attack. For instance, they successfully 0:11:57.559 --> 0:12:00.400 blocked a merger of the publisher's Penguin, Random Had and 0:12:00.440 --> 0:12:03.400 Simon and Schuster by arguing that the deal would lead 0:12:03.440 --> 0:12:04.920 to lower earnings for authors. 0:12:05.240 --> 0:12:07.679 But the DOJ's results when it comes to chicken have 0:12:07.760 --> 0:12:11.040 been more mixed despite that broader definition of anti trust. 0:12:11.360 --> 0:12:15.199 In twenty twenty, the DOJ indicted executives from poultry processors 0:12:15.200 --> 0:12:18.800 including Pilgrim's Pride and Claxton Poultry Farms for price fixing, 0:12:19.200 --> 0:12:20.839 only to see them acquitted by a jury. 0:12:21.400 --> 0:12:24.240 There have been some wins too. The DOJ got a 0:12:24.480 --> 0:12:27.400 eighty five million dollar settlement with a bunch of poultry 0:12:27.400 --> 0:12:31.560 processors over allegations that they conspired to share information on wages. 0:12:32.040 --> 0:12:36.800 One of the cases we brought involved an information sharing 0:12:37.040 --> 0:12:42.800 amongst chicken processors, and they were sharing incredibly detailed information 0:12:43.040 --> 0:12:46.760 about compensation. And not only were they sharing it, they 0:12:46.760 --> 0:12:50.800 were like meeting every year and eventually bringing their data 0:12:51.440 --> 0:12:53.160 so that they could all be sure that they were 0:12:53.200 --> 0:12:57.280 sharing accurate data and then talking about compensation. So there's 0:12:57.600 --> 0:13:02.160 the example of coordination amongst people who should be competing 0:13:02.200 --> 0:13:05.480 for workers actually figuring out how not to compete with 0:13:05.520 --> 0:13:05.920 each other. 0:13:06.360 --> 0:13:10.440 And last year Coke Food's, a huge poultry processor, agreed 0:13:10.480 --> 0:13:12.959 that it would no longer charge a penalty if contract 0:13:13.000 --> 0:13:16.920 growers choose to switch processors after the DOJ filed suit 0:13:17.040 --> 0:13:21.320 under Sherman and our good friend the Packers and Stockyards Act. 0:13:21.720 --> 0:13:26.840 Another case we brought involved again a specific chicken processor 0:13:27.480 --> 0:13:31.480 who was contracting with and that's already a relationship where 0:13:31.520 --> 0:13:34.760 the processor owns most of the bargaining power, but decided 0:13:34.800 --> 0:13:38.800 that wasn't enough their growers. If you want to switch 0:13:38.960 --> 0:13:41.320 to one of our competitors, we're going to make you 0:13:41.400 --> 0:13:47.760 pay a penalty. So that is the processor preventing competition 0:13:47.880 --> 0:13:51.199 unilaterally by making it harder for the grower to actually 0:13:51.280 --> 0:13:54.440 benefit from whatever competition exists in the market. And it 0:13:54.480 --> 0:13:59.320 is also just simply obviously unfair to these growers who 0:13:59.720 --> 0:14:03.559 don't have that much opportunity by denying them whatever limited 0:14:03.559 --> 0:14:04.480 opportunities exist. 0:14:05.600 --> 0:14:07.880 It's a nice step for critics of the tournament system 0:14:07.920 --> 0:14:10.559 that we talked about in episode two, but there's also 0:14:10.600 --> 0:14:11.480 more that could be done. 0:14:12.040 --> 0:14:15.199 The third case involved the chicken tournament system, right, and 0:14:15.240 --> 0:14:18.520 so One of the things chicken farmers face growing chickens 0:14:18.600 --> 0:14:21.720 is every six weeks when their chickens are picked up 0:14:21.720 --> 0:14:25.600 by the processor, they are actually weighed and measured against 0:14:25.880 --> 0:14:29.280 the other growers that are delivering chicks the same week, 0:14:29.400 --> 0:14:34.160 and it's almost you know, you're directly competing with your 0:14:34.240 --> 0:14:40.320 fellow chicken growers. And some people get penalized and some 0:14:40.400 --> 0:14:46.080 people get a benefit. But given the risk these growers face, 0:14:46.240 --> 0:14:50.080 we brought a case saying the penalty itself makes it 0:14:50.120 --> 0:14:54.000 impossible for growers to really understand the financial risks they're 0:14:54.040 --> 0:14:57.400 taking because there's a lot of arbitrariness in the tournament 0:14:57.480 --> 0:15:00.880 and it's not just your results don't depend on how 0:15:00.920 --> 0:15:05.960 well you perform. And so Wayne Sanderson, who is the 0:15:06.120 --> 0:15:09.760 I believe the third largest chicken processor in the country, 0:15:10.200 --> 0:15:14.040 agreed that they would stop penalizing growers in their tournament. 0:15:13.680 --> 0:15:17.960 System, so another small victory. Meanwhile, the US Department of 0:15:18.000 --> 0:15:22.000 Agriculture this year proposed more regulation of the tournament system 0:15:22.080 --> 0:15:25.960 under you guessed it, the Packers in Stockyards Act. Joe, 0:15:25.960 --> 0:15:27.920 should we make packers in stockyards merch? 0:15:28.200 --> 0:15:28.400 Yes? 0:15:28.520 --> 0:15:31.640 Absolutely, well maybe, but it is kind of interesting to 0:15:31.640 --> 0:15:33.960 think about how two hundred and fifty years ago, Americans 0:15:34.000 --> 0:15:36.640 were all worried about taxes under King George and the 0:15:36.680 --> 0:15:39.200 tyranny of the state. But today maybe we should all 0:15:39.280 --> 0:15:42.320 be worrying about something else, what Dilha calls the tyranny 0:15:42.400 --> 0:15:43.360 of the intermediary. 0:15:44.360 --> 0:15:49.000 Thinking about the chicken industry in particular, you see limits 0:15:49.080 --> 0:15:53.640 on the ability to sell your product or service to 0:15:53.760 --> 0:15:56.880 a small number of companies, And that is how you 0:15:57.040 --> 0:16:00.280 get this problem of the tyranny of the intermediary. It's 0:16:00.320 --> 0:16:03.520 the meat processor that sits in the middle, right between 0:16:03.520 --> 0:16:07.680 the ultimate purchaser and the grower, and can command a 0:16:07.720 --> 0:16:10.440 certain sum or lower the price on one side of 0:16:10.480 --> 0:16:13.680 the market and really grow revenues and get fatter in 0:16:13.720 --> 0:16:14.120 the middle. 0:16:14.520 --> 0:16:17.400 So anti trust has a long history with agriculture and 0:16:17.400 --> 0:16:20.160 the poultry industry, although the way it's being viewed and 0:16:20.280 --> 0:16:23.880 enforced has been changing recently. But that's only one side 0:16:23.880 --> 0:16:27.000 of the story, because even as anti trust evolves, the 0:16:27.040 --> 0:16:29.920 way companies run their businesses has evolved too. 0:16:30.720 --> 0:16:35.480 A lot. When the Sherman Act and the Clayton Act 0:16:35.480 --> 0:16:38.320 and the Packers and Stockyards Act were all created, the 0:16:38.360 --> 0:16:42.440 middlemen of America were smaller and not as technically sophisticated. Obviously, 0:16:42.800 --> 0:16:45.480 if you're going to influence prices, you're probably doing it 0:16:45.520 --> 0:16:48.960 in a back room somewhere, smoking a cigar, probably playing poker. 0:16:50.520 --> 0:16:53.600 But today companies have a host of new data sources 0:16:53.640 --> 0:16:56.720 and tech powered tools to run their businesses. And when 0:16:56.720 --> 0:16:59.720 it comes to Chicken and souped up data sources, we 0:16:59.840 --> 0:17:02.000 have to talk about Agristats. 0:17:02.120 --> 0:17:05.520 We'll say, generally speaking, it's often been referred to as 0:17:05.560 --> 0:17:08.040 the most important, one of the most important companies you've 0:17:08.080 --> 0:17:08.719 never heard of. 0:17:09.280 --> 0:17:13.480 That's Jonathan Canter, the Assistant US Attorney General for Antitrust 0:17:13.560 --> 0:17:17.400 at the DOJ. He's the head honcho Doha and Michael's 0:17:17.400 --> 0:17:20.960 boss basically, and together with Lena Kahan, the chair of 0:17:21.000 --> 0:17:23.960 the Federal Trade Commission, he's been leading one of the 0:17:23.960 --> 0:17:29.800 most aggressive regulatory responses to antitrust in years, decades even, and. 0:17:29.800 --> 0:17:33.040 One of their more recent actions is against Agristads. Now 0:17:33.040 --> 0:17:35.920 onloads listeners will actually have heard of this company before. 0:17:36.040 --> 0:17:38.560 We spoke about it earlier this year with David Dian, 0:17:38.920 --> 0:17:42.000 the executive editor of The American Prospect. He did such 0:17:42.000 --> 0:17:44.560 a good job describing what Agristas does that we're just 0:17:44.560 --> 0:17:45.720 going to let him do it again here. 0:17:45.920 --> 0:17:50.480 And this company collects real time proprietary data from all 0:17:50.680 --> 0:17:54.680 of the meat packing producers in a given market, whether 0:17:54.720 --> 0:18:00.240 it's pulk or pork, or poultry or chicken or turkey. 0:18:00.840 --> 0:18:04.080 And they put all this data in these giant books 0:18:04.359 --> 0:18:08.520 and they give them out to these various competitors, which 0:18:08.560 --> 0:18:13.200 now have basically a setup of everything that their competitors 0:18:13.200 --> 0:18:17.399 are doing, including their price, including their supply, including every 0:18:17.480 --> 0:18:18.320 single thing. 0:18:18.320 --> 0:18:19.320 Part of their market. 0:18:19.880 --> 0:18:23.360 And now they can know that, oh, I can probably 0:18:23.480 --> 0:18:27.840 raise my price because I'm under price relative to my competitor, 0:18:28.080 --> 0:18:30.959 but I won't lose market share because my competitor is 0:18:31.280 --> 0:18:35.000 charging more for this product and it has the tendency 0:18:35.040 --> 0:18:36.560 to ratchet prices upward. 0:18:37.240 --> 0:18:41.080 The DOJ filed suit against Agristats last year, arguing that 0:18:41.119 --> 0:18:44.440 it was violating the Sherman Act by sharing competitive information. 0:18:45.000 --> 0:18:48.800 We reached out to Agristats for comment, however, they didn't respond. 0:18:49.240 --> 0:18:52.760 The company published a statement on its website shortly after 0:18:52.920 --> 0:18:56.600 the lawsuit was initially filed. They're denying the allegations. 0:18:57.000 --> 0:18:59.680 Currently, the case is still live, which means Jonathan can't 0:18:59.680 --> 0:19:02.840 talk about it in detail, but more generally, he argues 0:19:02.880 --> 0:19:05.840 that it illustrates the dominance of intermediarias in the economy. 0:19:06.160 --> 0:19:10.320 So this is a case that we brought involving information exchanges, 0:19:10.440 --> 0:19:15.200 among other things, poultry processors and the idea. And this 0:19:15.240 --> 0:19:17.720 is something that we're seeing in many aspects of our economy, 0:19:17.840 --> 0:19:23.040 is that when large companies share competitively sensitive information using 0:19:23.280 --> 0:19:27.880 often faceless intermediaries, that sharing of information can result in 0:19:28.520 --> 0:19:33.040 higher prices to consumers, but it could also result in depriving, 0:19:33.280 --> 0:19:36.440 in this instance, family farmers and others of a fair 0:19:36.480 --> 0:19:37.520 return on investment. 0:19:38.040 --> 0:19:41.159 So the way companies might share price and market information 0:19:41.400 --> 0:19:44.560 has moved on from those secret deals in dark rooms 0:19:44.600 --> 0:19:46.760 of the past. Now they might do it on a 0:19:46.800 --> 0:19:50.960 platform or through an algorithm, and antitrust enforcement has to 0:19:51.000 --> 0:19:52.159 adapt to this new world. 0:19:52.720 --> 0:19:55.239 This is an issue that we are confronting throughout our 0:19:55.280 --> 0:20:00.000 economy and so the concerns around data sharing and coordinat 0:20:00.359 --> 0:20:04.520 are not new. The antitrust laws enacted initially in eighteen 0:20:04.600 --> 0:20:07.280 ninety have been dealing with this ever since. But what 0:20:07.320 --> 0:20:12.040 we are encountering now is almost a supercharging of data 0:20:12.040 --> 0:20:15.480 sharing and coordination, and so the use of technology and 0:20:15.600 --> 0:20:20.600 intermediaries has created the opportunity for companies to contribute information, 0:20:20.680 --> 0:20:23.879 for example, to a central database or service and have 0:20:24.000 --> 0:20:28.200 that service essentially perform the function of coordinating and using 0:20:28.240 --> 0:20:32.200 that data to help those companies extract higher prices or 0:20:32.240 --> 0:20:35.480 offer lower returns to people who are selling their goods 0:20:35.480 --> 0:20:40.520 and services. In the context of technology, now, something that 0:20:40.600 --> 0:20:44.080 used to be difficult to do because it required Manila 0:20:44.200 --> 0:20:47.840 envelopes of data and spreadsheets and calculators and a lot 0:20:47.840 --> 0:20:52.760 of manual labor is increasingly being outsourced to technology algorithms 0:20:53.160 --> 0:20:57.280 that can take this information and essentially take on the 0:20:57.480 --> 0:21:01.800 pricing or take on competitively sensitive functions of a business. 0:21:02.359 --> 0:21:07.200 And the more that is outsourced to these technologies, these algorithms, 0:21:07.600 --> 0:21:11.560 the more the difficulties that used to somewhat restrict the 0:21:11.640 --> 0:21:16.680 ability of companies to engage in anti competitive coordination. Those frictions, 0:21:16.720 --> 0:21:20.200 those impediments are being lifted and eliminated, and it's going 0:21:20.240 --> 0:21:22.560 to make it easier and more effective. And that is 0:21:22.600 --> 0:21:25.919 a real big concern of ours. And so when we 0:21:25.960 --> 0:21:28.800 think about what does an agreement look like, what does 0:21:28.840 --> 0:21:31.520 information sharing, what does coordination look like? In the year 0:21:31.560 --> 0:21:34.879 twenty twenty four, we have to look at what market 0:21:34.920 --> 0:21:39.600 realities present and market realities today present algorithms doing that work. 0:21:39.640 --> 0:21:42.960 And whether it's an algorithm taking the information, spinning it 0:21:43.040 --> 0:21:46.760 back out and resulting at higher prices, or two individuals 0:21:46.760 --> 0:21:48.439 in a smoke filled room as it might have been 0:21:48.440 --> 0:21:51.560 one hundred years ago, it's the same anti competitive end. 0:21:51.880 --> 0:21:54.840 They're just doing it through different means. And so whether 0:21:54.880 --> 0:21:58.119 it's a handshake, using the postal service and sending mail 0:21:58.520 --> 0:22:02.080 to coordinate, whether it's it's using email or text messages 0:22:02.160 --> 0:22:05.640 or chat or phone, or in today's world, sharing information 0:22:05.680 --> 0:22:08.840 through an algorithm and outsourcing it to AI, it's still 0:22:08.840 --> 0:22:12.320 the same thing. It's coordination, it's price fixing, it's market allocation. 0:22:12.800 --> 0:22:15.760 In the antitrust laws applied just as much now, if 0:22:15.800 --> 0:22:18.000 not more, than they did when they were enacted in 0:22:18.000 --> 0:22:18.679 eighteen ninety. 0:22:19.040 --> 0:22:21.479 So the outcome of the agristatsuit will be very interesting 0:22:21.520 --> 0:22:21.919 to watch. 0:22:22.359 --> 0:22:25.280 But what about changes in the way we raise chickens too, 0:22:25.400 --> 0:22:29.120 Because even if chicken prices come down and labor practices improve, 0:22:29.440 --> 0:22:37.480 there might still be some other poultry related problems. 0:22:42.320 --> 0:22:45.399 One of the most remarkable food miracles is the story 0:22:45.440 --> 0:22:49.760 of Chicken, a triumphle of research on the farm and 0:22:49.840 --> 0:22:54.320 in the marketing system. Once something special for Sunday dinner. 0:22:54.760 --> 0:23:00.640 Chicken inspected and graded is now thrifty every day. Yes, 0:23:00.720 --> 0:23:03.960 in one generation, people of this country have doubled their 0:23:04.000 --> 0:23:10.119 consumption of potun Bomb research has led to the control 0:23:10.160 --> 0:23:16.240 of disease, improvement of breeds, advancement of production marketing research 0:23:16.480 --> 0:23:22.560 has developed low cost methods of mass distribution in processing, storing, handling, 0:23:22.560 --> 0:23:27.240 and packing. And these boxes joined the never ending. 0:23:27.119 --> 0:23:29.640 Technological changes in the way we grow chickens was once 0:23:29.680 --> 0:23:32.280 pitched as a big win for consumers. We talked about 0:23:32.280 --> 0:23:35.680 it in our earlier episode. The introduction of hormones, antibiotics, 0:23:35.680 --> 0:23:38.520 and growth promoters all combined to create a more robust chicken. 0:23:38.880 --> 0:23:42.080 But just as antitrust regulators have started to prepare some 0:23:42.200 --> 0:23:45.679 of the damage wrought by new technologies, consumers have been 0:23:45.720 --> 0:23:46.480 pushing back too. 0:23:47.119 --> 0:23:50.119 We spoke to Marion McKenna, the public health specialist earlier 0:23:50.119 --> 0:23:53.000 in the series, and as she explained it, people's attitudes 0:23:53.040 --> 0:23:56.520 towards let's call them augmented chickens has turned. 0:23:56.960 --> 0:23:57.120 Now. 0:23:57.160 --> 0:23:59.760 The worry is that all that antibiotic use in birds 0:23:59.840 --> 0:24:02.280 might make it more difficult to treat people, and that's 0:24:02.320 --> 0:24:03.360 led to a big change. 0:24:03.800 --> 0:24:08.200 We got really significant change in the United States about 0:24:08.440 --> 0:24:12.479