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Popular Media Regulation is justified when it serves the public interest, but it is frequently motivated by the economic self-interest of powerful groups. Economists call this the . . .
Regulation is justified when it serves the public interest, but it is frequently motivated by the economic self-interest of powerful groups. Economists call this the “bootleggers and Baptists” phenomenon—those likely to profit from trade in illicit alcohol push for regulation alongside the moralists hoping to protect the vulnerable.
Read the full piece here.
Scholarship Abstract Over the past ten years, administrative law scholarship has increasingly focused on interactions between multiple agencies. As part of this trend, most scholars have . . .
Over the past ten years, administrative law scholarship has increasingly focused on interactions between multiple agencies. As part of this trend, most scholars have called for policymakers to combine multiple agencies, rather than rely on a single agency, to solve policy problems. The literature in this area espouses the benefits of shared regulatory space. But very little of this scholarship addresses when shared jurisdiction is problematic. This is particularly concerning when an agency opts into or cedes oversight authority to another agency at will, with little regard for whether the second agency is an appropriate regulator. The case of cell-cultured (or lab-grown) meat presents one such example. In 2018, both the U.S. Food and Drug Administration and the U.S. Department of Agriculture separately announced that regulating cell-cultured meat fell under their sole purview, to the exclusion of the other agency. After much back-and-forth, the agencies issued a joint statement announcing a shared system of regulatory oversight.
This Article argues that the FDA should not have ceded any of its regulatory authority to the USDA because joint regulation of cell-cultured meat, as between the FDA and USDA, is both inappropriate and unnecessary. USDA involvement is inappropriate because the Department suffers from a mixed mandate problem. Not only is the Department tasked with maximizing agricultural industry profits (and minimizing losses), but it is also tasked with nourishing Americans (and improving nutrition and health). In the case of cell-cultured meat, these two goals are diametrically opposed. Further, USDA involvement is inappropriate given the Department’s purview, as set by Congress, and its concomitant expertise. As it relates to meat, the USDA exists specifically to monitor the safety and sanitation of the nation’s farms, slaughterhouses, and meat processing and packaging plants. Consequently, all the Department’s meat-related regulations and expertise are in these areas. USDA involvement in the regulation of cell-cultured meat is also unnecessary because it is redundant. Accordingly, this Article’s analysis belies the notion that all agency collaboration is good collaboration.
Written Testimonies & Filings ICLE President Geoffrey Manne testified to the House Judiciary Committee Antitrust Subcommittee on the role of competition in America's food-supply chain.
There is a wide range of possible explanations for the rise in consumer food prices over the past year: Increased demand driven by fiscal stimulus, disruptions arising from an unprecedented set of simultaneous supply and demand shocks, the incentive effects of government responses to the COVID-19 pandemic, and an increase in the money supply, among others. Each of these factors is interrelated, and each has surely contributed in varying degrees to current headline inflation woes.
What is not a plausible explanation is increased concentration and the exercise of market power in the food supply chain.
Between December 2019 and September 2021, the U.S. money supply (driven primarily by the Federal Reserve’s purchases of Treasuries and mortgage-backed securities), grew by approximately $5.5 trillion—a 36% increase. Likewise, the federal government has approved about $4.5 trillion in pandemic relief and stimulus payments since the beginning of COVID-19. The government also injected a huge amount of money into the economy and added about $5 trillion to the federal debt.
Massive debt spending isn’t inherently inflationary as long as people understand that taxes will increase or spending will decrease to “pay off” the debt. But today it seems that people do not have much of an expectation that taxes will meaningfully increase or that spending will meaningfully decrease. Indeed, the discourse around the administration’s “Build Back Better” legislation gives the impression of a virtually endless spending binge with little additional revenues to offset the spending. This feeds inflation expectations, and expectations can be self-fulfilling.
To make matters worse, the pandemic was not a standard demand-driven recession. Pre-COVID, the U.S. economy was more or less roaring. Unemployment was at its lowest rate in 50 years. Labor force participation among the working age populations was back to pre-Great Recession levels. The Dow Jones Industrial Average was at an all-time high. Americans may have needed relief to get through the pandemic, but the economy did not need any stimulus.
We should also be clear that the current 7% headline inflation rate is a measure of past price- level changes between December 2020 and December 2021. It’s not a measure of the rate at which prices are increasing right now, however. And while the 7% number grabbed all the headlines, the CPI rose at a slower rate in December than it did in November, meaning the monthly inflation rate (as well as the implied annualized inflation rate) actually fell in December. The point is that, problematic as they are for actual consumers, current consumer prices and trends do not provide a sound basis for massive, economy-wide government intervention.
It is hardly surprising that shifting consumption patterns and the post-vaccine re-opening of the economy have led to short-term frictions, such as backlogs at ports, a shortage of truckers, and disruption throughout the supply chain, all of which are associated with important relative price movements. But they aren’t “inflation” in the sense that all prices and wages aren’t increasing together. These shocks are most likely transitory, and higher prices will recede as the supply chain returns to normal. That is, as long as sensible economic and fiscal policies predominate. But in the face of the harsh political realities of the current state of affairs, there is no guarantee that reason will prevail.
Rather than accepting these extremely likely causes of the recent increase in prices, some blame inflation on a widespread pandemic of “greed” and “collusion” by businesses. Wide swaths of American industry have been hit with these allegations, including oil companies, natural gas producers, health care providers, meat packers, and grocery stores.
Critics of American business blame years, if not decades, of so-called “rising concentration.” It’s claimed that the increase in concentration stems from mergers and acquisitions over the years that were blessed by lax antitrust regulators or merely overlooked by overworked agencies. These critics give the impression that in virtually all corners of the American economy lurk sleeper cells of colluding cartels that activated their plans just as the country went into lockdown.
Under this thinking, vigorous antitrust enforcement will punish the colluders and stop the scourge of rising prices. But this thinking is misplaced.
First, antitrust is simply not the proper tool. The purpose of antitrust law in the U.S. is to protect competition, rather than to guarantee low prices in and of themselves. That’s why it is illegal to conspire to raise prices or attempt to monopolize a market. Conversely, this also explains why high or rising prices are not an antitrust violation—because these prices may be the result of the undistorted competition antitrust ultimately protects. Even price gouging during a disaster rarely merits antitrust scrutiny because it’s understood that that is how markets work—especially competitive markets. That is because it is widely understood that the price system is the most effective system for allocating resources, even when the process itself is painful.
Second, and more practically, antitrust enforcement often moves at a glacial pace. Even successful prosecutions of anticompetitive behavior take years to resolve. The DOJ’s investigations of price fixing in the broiler chicken market and the packaged seafood market were announced several years after the alleged collusion began. While the investigations led to guilty pleas and a criminal conviction, they did nothing to reduce prices at the time the conspiracies were active.
All of this is not to say that some producers are not monopolizing a market or conspiring with competitors to raise prices. If they are, there is an important role for an antitrust investigation and enforcement—that is the purpose of our antitrust laws. But even relatively rapid and vigorous antitrust investigations will do little to reduce the prices consumers are paying today, especially if they are the perfectly predictable, if messy, result of market competition in the midst of a global pandemic. As much as some would like antitrust to be the Swiss Army knife of public policy, it is an entirely inappropriate tool to address economy-wide inflation.
At the same time, even within the industries that have seen particularly newsworthy price increases, and which are the subject of today’s hearing, the complex competitive dynamics of those industries offer far more plausible explanations of current prices than do unsubstantiated claims of anticompetitive conduct or collusion. But they don’t offer convenient scapegoats to quell the political consequences of these price increases.
It is difficult not to see the pursuit of a scapegoat in the administration’s focus on concentration and market power as a culprit for today’s higher food prices.
Read the full written testimony here.
TOTM As a new year dawns, the Biden administration remains fixated on illogical, counterproductive “big is bad” nostrums. Noted economist and former Clinton Treasury Secretary Larry Summers . . .
As a new year dawns, the Biden administration remains fixated on illogical, counterproductive “big is bad” nostrums.
Noted economist and former Clinton Treasury Secretary Larry Summers correctly stressed recently that using antitrust to fight inflation represents “science denial,” tweeting that…
Written Testimonies & Filings Written Statement of Geoffrey A. Manne on “Antitrust Concerns and the FDA Approval Process” U.S. House of Representatives Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law.
Written Statement of Geoffrey A. Manne on
U.S. House of Representatives Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial, and Antitrust Law
Poorly drafted regulations, especially in heavily regulated industries, can create opportunities for anticompetitive abuse. Established companies know how to navigate regulatory mazes, and the complexities of such regimes create innumerable opportunities for nominal compliance at the expense of competition, innovation, and new entry.
The legislative and regulatory impulse when faced with deeply entrenched regulations and their competitive manipulations is often to pile on, either with even more-complex regulatory amendments or else antitrust enforcement that side-steps the root problem, focusing on “fixing” allegedly anticompetitive conduct rather than reforming the underlying laws that facilitate it.
But the government has a questionable track record in promoting competition, not infrequently adopting policies seemingly tailor-made to perpetuate, rather than constrain, harmful conduct.
The FDA Act and the regulations promulgated under it by the agency stand as Exhibit A in this regard. Last year’s controversy over Mylan Pharmaceuticals’ price hike on the EpiPen, for example, is symptomatic of the problem. The market for pharmaceuticals is complicated, but one thing seems clear in the pricing controversy: the FDA has been an effective ally for Mylan in keeping out competitive producers of generic epinephrine auto-injectors. Drug safety is important, of course, but since 1962 the FDA has also reviewed drugs for “efficacy,” which introduced massive delay and uncertainty, arguably without concomitant benefit. And the FDA’s approval and oversight processes for generics and biosimilars, although improved since 1962, continue to impede effective entry. Thus, with the field clear of competitors, it is no surprise that Mylan was able to raise prices. Only following the angry public outcry did the FDA finally accelerate its review process and approve a competing product last month.
But efficacy review is not the FDA’s only regulatory cul de sac through which pharmaceutical manufacturers can employ regulatory policies to keep unwanted competitors off the block. In particular, one aspect of the FDA’s drug safety oversight regime has emerged as a device for some manufacturers to delay generic entry: the Risk Evaluation and Mitigation Strategies, or “REMS,” program.
What I will refer to collectively as the FDA Act’s REMS program comprises two elements that are relevant here: First, it requires branded drug manufacturers to make samples of their drugs available to would-be generic entrants so that they can use them in the lengthy safety and efficacy testing process required to secure FDA approval. Second, it requires brand drug companies to adopt a concerted set of practices and policies aimed at mitigating the risks inherent in the use of most drugs, and additional, more restrictive practices to ensure the safe use of particularly dangerous or addictive drugs — the so-called “REMS with ETASU” (“Elements to Assure Safe Use”). The program also requires that brand manufacturers allow generic entrants to share in these enhanced mitigation processes in order, presumably, to streamline the process and economize on compliance costs.
By forcing collaboration between competitors, the REMS program is practically tailor-made for problems. Although the FDA Act specifically prohibits the use of these regulatory elements to block lower-cost, generic alternatives from entering the market (of course), almost immediately following the law’s enactment, a small handful of branded pharmaceutical companies began using REMS for just that purpose (also, of course).
Some (now-former) FTC commissioners, among others, have raised concerns that brand drug manufacturers can (and do) take advantage of these provisions by adopting tough negotiating positions that, they allege, amount to anticompetitive exclusion requiring agency enforcement. I believe that that would be decidedly the wrong approach to dealing with the issue. These are not properly antitrust problems; they are problems of poor regulatory design.
But it is also true that the program itself exists to implement an underlying policy that may be even worse, and it is likely that reforming a few key elements of the program would help prevent such abuses — but Congress should adopt more fundamental policy changes, as well.
The first part — sharing samples — cannot easily be fixed by removing the required collaboration, at least not without completely revamping (or removing) the FDA’s drug safety and efficacy oversight function (however desirable reform of these functions would be). But the second — sharing REMS programs — can be.
Read the full statement here.
ICLE White Paper The agriculture sector has seen significant technological innovation and organizational change over the last two decades, leading to increases in both farm productivity and profitability.
The agriculture sector has seen significant technological innovation and organizational change over the last two decades, leading to increases in both farm productivity and profitability. These scientific breakthroughs, most notably in crop protection science biotech seed traits and precision farming, were the result of substantial research and development (“R&D”) investment. Further, these technological breakthroughs were accompanied by organizational changes — e.g., increasing vertical and horizontal collaboration — that have enabled an increasingly complex industry to productively implement them.
In recent years the need to innovate has only increased. As technology in the sector continues to evolve, companies are increasingly adapting with structural changes to enable more effective R&D. These adaptations include increased collaboration between companies and, at times, integration of firms through mergers and acquisitions (“M&A”). This M&A activity has harmed neither competition, innovation, or investment by new entrants. In fact, combining businesses with complementary R&D has spurred innovation and accelerated the development and deployment of new products, one of the primary goals of the antitrust laws. Advances in biotechnology, crop protection science, and AgTech have provided farmers with increasingly sophisticated tools to meet the challenges of increasing demand for food and diminishing natural resources. Far from harming innovation, M&A activity in the agriculture industry has been accompanied by tremendous increases in R&D spending by existing and new companies and enhanced agricultural productivity.
Criticisms of agricultural industry M&A activity — and to the current, proposed Bayer-Monsanto and Dow-DuPont mergers in particular — are based on one or more of several common misconceptions about the industry, innovation, competition, and the deals themselves. This paper identifies and responds to several of those misconceptions, focusing in particular on the claims raised in a 2016 working paper produced by the Agricultural and Food Policy Center at Texas A&M University, entitled Effects of Proposed Mergers and Acquisitions Among Biotechnology Firms on Seed Prices (“Texas A&M Report” or “Report”).1 Fundamentally, the Texas A&M Report incorporates flawed or incomplete antitrust law and economics in its condemnation of the pending mergers by alleging likely harms without considering their likely countervailing and procompetitive benefits. Further, the potential harms alleged are premised on unsound or outdated economic theory, or rooted in inconsistent or inaccurate characterizations of the deals, the industry, and its competitive dynamics. The Report’s substantial flaws make it an unsuitable guide to proper antitrust policy regarding the proposed deals.
TOTM On Thursday, March 30, Friday March 31, and Monday April 3, Truth on the Market and the International Center for Law and Economics presented a blog symposium . . .
On Thursday, March 30, Friday March 31, and Monday April 3, Truth on the Market and the International Center for Law and Economics presented a blog symposium — Agricultural and Biotech Mergers: Implications for Antitrust Law and Economics in Innovative Industries — discussing three proposed agricultural/biotech industry mergers awaiting judgment by antitrust authorities around the globe. These proposed mergers — Bayer/Monsanto, Dow/DuPont and ChemChina/Syngenta — present a host of fascinating issues, many of which go to the core of merger enforcement in innovative industries — and antitrust law and economics more broadly.
TOTM People need to eat. All else equal, the more food that can be produced from an acre of land, the better off they’ll be. Of . . .
People need to eat. All else equal, the more food that can be produced from an acre of land, the better off they’ll be. Of course, people want to pay as little as possible for their food to boot. At heart, the antitrust analysis of the pending agribusiness mergers requires a simple assessment of their effects on food production and price. But making that assessment raises difficult questions about institutional competence.
TOTM The recently notified mergers in the seed and agro-chem industry raise difficult questions that competition authorities around the world would need to tackle in the . . .
The recently notified mergers in the seed and agro-chem industry raise difficult questions that competition authorities around the world would need to tackle in the following months. Because of the importance of their markets’ size, the decision reached by US and EU competition authorities would be particularly significant for the merging parties, but the perspective of a number of other competition authorities in emerging and developing economies, in particular the BRICS, will also play an important role if the transactions are to move forward.