The digital transformation of Europe—and, indeed, the world—has been a defining theme of the 21st century. As with all significant shifts, it has also come with its share of challenges, opportunities, and controversies. 

One such controversy that has recently reemerged is the so-called “fair share” proposal for network traffic—championed most recently in a statement from the European Telecommunications Network Operators’ Association (ETNO)—under which the major tech platforms would be made to finance improvements to EU telecom networks. While ostensibly a call for regulatory change, the deeper one delves, the more evident it becomes that ETNO’s proposal is less about fairness and more a strategic play for legacy telecoms to tap into the vast revenues of major content producers.

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Federal Communications Commission (FCC) Chair Jessica Rosenworcel announced plans last week for the commission to vote Oct. 19 on whether to take the first steps toward reinstating Title II regulations on broadband providers. Two days later, the FCC issued a notice of proposed rulemaking (NPRM) for the Safeguarding and Securing the Open Internet (SSOI) order.

If adopted, the new rules would revive much of the Open Internet Order (OIO) the commission passed in 2015 under former FCC Chairman Tom Wheeler. That order classified broadband-internet service as a Title II telecommunications service under the Communications Act, treating many broadband services as public utilities. This allowed the FCC to impose common-carrier obligations on internet service providers (ISPs), including bans on blocking or throttling lawful content, paid prioritization of content, and other practices seen as contrary to so-called “net neutrality” principles.

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Lina M. Khan was sworn in as chair of the Federal Trade Commission (FTC) on June 15, 2021. On July 9 of that year, the FTC withdrew the commission’s 2015 “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act.” That three-week lag was, in practical terms, nothing. Even ignoring the many practical/ministerial/managerial things that come with assuming the chair, there’s a certain amount of process required of policy decisions at the commission.

As many noted at the time, rescinding the 2015 statement, “absent any new guidance about how the Commission interprets its authority,” did little to signal the commission’s new view of its authority. That is, apart from the vague signal that a far more expansive statement was forthcoming and, of course, a not-so-tepid statement that…

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Abstract

Mergers and acquisitions shape industry competition. Effective merger remedies are important for market efficiency and consumer welfare. This paper explores the need for more flexible remedies to address changing markets after mergers. While the EU permits some flexibility with less restrictive remedies, we conceptually advance the design elements of a dual-phase, bifurcated merger
control system. This system integrates ex-ante processes with more systematic and comprehensive ex-post measures. Such an approach can address the shortcomings of the current system and, consequently, holds the potential to enhance merger control in dynamic markets.

tl;dr

Background: Concerns have been raised that the proposed merger of grocers Kroger and Albertsons may leave the combined firm with monopsony power in the markets for wholesale produce  and for grocery workers. This follows last year’s ruling by a federal court blocking the merger of Penguin Random House LLC and Simon & Schuster, similarly on grounds of labor-market monopsony. The argument is that the company would dominate in areas where the merging firms formerly competed for employees and other inputs. The combined firm could then use that power to suppress wages, reduce employment, or impose unreasonable working conditions on workers.

This isn’t the first time U.S. antitrust regulators have targeted monopsony in labor markets. In addition to merger review, other recent efforts have included lawsuits against “no-poach” agreements, as well as the Federal Trade Commission’s (FTC) recent proposal to ban  noncompete agreements in employment contracts.

But… Monopsony power often derives from labor-market frictions that antitrust can’t address. Most labor markets aren’t highly concentrated and most workers have multiple potential employers from which to choose. In other words, labor markets are generally poor targets for antitrust enforcement. As explained below, this raises several significant challenges for antitrust enforcers.

KEY TAKEAWAYS

MOST LABOR MARKETS ARE COMPETITIVE

So-called “company towns,” in which one firm dominates or actually owns a community, are rare. Most workers in the labor force have a broad range of employment opportunities across occupations, industries, and locations. A supermarket cashier can find employment at another supermarket, at another retail outlet, or shift their occupation to hospitality, food service, or distribution and logistics. They can also move to locations with better employment opportunities. A merger of supermarkets won’t suppress those opportunities.

The most compelling monopsony claims tend to concern labor markets that demand extensive or idiosyncratic skills, which couldn’t easily be transferred to other occupations or industries. For example, the Penguin/Simon & Schuster case centered on writers of bestsellers whose book advances exceed $250,000.

PRODUCT MARKETS IN ANTITRUST

All antitrust claims require defining a relevant market, but the endeavor is significantly more complicated in the context of labor markets. 

For example, what is the relevant labor market for supermarket employees? Surely, Costco employees should be included, even if Costco does not technically qualify as a “supermarket,” but what about employees of other retailers? What about hospitality and fast-food workers? When examining the labor market for workers who lack extensive or idiosyncratic skills, just about any reasonable definition of the relevant market would be too large to allege that any one firm possesses market power.

In a perfect world, these questions could be tested empirically. Unfortunately, antitrust enforcers often don’t have the requisite data and must rely on anecdotal evidence to delineate labor markets.

GEOGRAPHIC MARKETS IN ANTITRUST

U.S. workers are highly mobile. Roughly half of American adults live in a state other than the one in which they were born. Indeed, much of U.S. demographic history concerns people relocating for work. This makes it especially challenging to define a relevant geographic market for labor-monopsony claims. 

This is particularly true in urban environments, where there are many employment opportunities within commuting distance, especially for workers with fewer skills or less experience. Hence, stronger claims of labor-market monopsony tend to concern rural markets with limited job opportunities. It’s much easier to claim that Walmart holds labor-monopsony power in a small town than in even a medium-sized city.

UNION POWER AND ANTITRUST

Antitrust enforcers also need to account for the countervailing market power held by labor unions. Obtaining and exerting market power is unions’ raison d’être. As the old song says: “There is power in a union.”

For instance, if the FTC challenges the Kroger-Albertsons merger (as is expected) by alleging labor-market monopsony, the agency will have to contend with the fact that roughly 60% of the merged company’s workforce will be unionized. Attempts to exercise monopsony power would likely be dampened by the effects of unions collectively bargaining to maintain high wages and prevent layoffs.

BALANCING CONSUMER & WORKER WELFARE

The final challenge to labor-monopsony cases is that the primary purpose of antitrust enforcement is widely accepted to be protecting against harms to competition or to consumers. In labor cases, this will almost inevitably require important tradeoffs. 

While a merger might suppress the wages that would otherwise be paid by the merging companies, these wage reductions may then be passed on to consumers in the form of lower prices. Reduced labor input for a particular type of worker or workers does not mechanically translate into reduced output for consumers. This can be the case, for example, when a merger results in restructuring. 

In evaluating a merger, the agencies and the courts must balance the anticipated harms to employees against the potential benefits to consumers. This is a daunting task that may prove insurmountable in many cases.

For more on this issue, see the International Center for Law & Economics (ICLE) issue brief “Five Problems with a Potential FTC Challenge to the Kroger/Albertsons Merger.” See also, “FTC Should Allow Kroger-Albertsons Merger to Go Through” by Eric Fruits and Geoffrey Manne.

 

The Federal Communications Commission (FCC) is no stranger to undertaking controversial and potentially counterproductive regulatory projects. The commission’s digital-discrimination proceeding is expected to continue in November, and FCC Chair Jessica Rosenworcel just announced that the FCC will revive the warmed-over corpse of the 2015 Open Internet Order. This latter item highlights how the FCC’s Democratic majority has been emboldened to pursue risky regulatory adventures with the addition of recently confirmed Commissioner Anna Gomez.

But given that the FCC will already have a plate full of difficult docket items, it should continue to avoid a further landmine that some advocates have been pressing to take up this year: reopening former Chair Tom Wheeler’s proceeding on multichannel video programming distributors (MVPDs). First proposed in late 2014 but ultimately not adopted by the commission, the Wheeler FCC’s notice of proposed rulemaking (NPRM) would bring over-the-top linear-video providers like YouTube TV and Hulu Live under the FCC’s program access and carriage rules.

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There is mounting evidence that both the Federal Commission (FTC) and the U.S. Justice Department’s (DOJ) Antitrust Division (DOJ) are, under their current leadership, hostile to mergers. There are multiple elements to this evidence.

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My colleagues at the International Center for Law & Economics (ICLE) often engage not only in excellent analysis of proposed mergers and acquisitions, but also have been known to offer retrospectives on past mergers. Today, I want to offer a very personal version of this.

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Abstract

The EU Commission’s recent proposal for a regulation on standard essential patents (SEPs) envisages a radical overhaul of the current framework, introducing an essentiality check system, a conciliation process for fair, reasonable and non-discriminatory (FRAND) terms, and a mechanism to determine a reasonable aggregate royalty. However, both the economic justification and the approach endorsed by the proposal are questionable. Indeed, on one hand, there is no evidence of a market failure to justify the initiative and, in addition, the provisions appear to be one-sided, apparently being aimed only at addressing a hold-up problem and pursuing a value-distribution goal from SEP owners to implementers. Accordingly, this paper views the proposal critically, arguing that it departs from the well-established meaning and rationale of FRAND commitments by disregarding hold-out problems, and it jeopardises the suitability of SEPs to serve as valuable financial collateral, thereby endangering future investments in innovation.