The Coronavirus Crash + a Merger Boom

Intuit-Credit Karma, Kronos, Morgan Stanley-Etrade


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Normally I write one main essay, but today I have a bunch of small stuff to go over because there’s so much happening. First some housekeeping:

  • I wrote a piece for Wired on how the coronavirus is leading us to a very different form of politics, away from the basic assumption that stuff always just shows up in stores.

  • There are now comments enabled on these posts, and I’m learning a ton from readers of this newsletter. This comment from my last issue is a wonderful observation from a manufacturer of how overpriced military/aerospace products combined with Chinese dumping erodes domestic manufacturing capacity. You can comment by clicking on the title of this post and going to the bottom.

  • I was on Rising with Saagar Enjeti and Krystal Ball talking about the Democratic Party as a monopoly. I always love that show. I was also on the John Fredericks show discussing the previous Democratic debate (not the one last night but the one before that).

The Coronavirus Crash

Last year, the Chief Scientific Officer of the Zhejiang Medicine Company, Choon Teo, said something brutal to U.S. government officials who were trying to figure out what tariffs to levy against Chinese products. Teo’s company is a large scale producer of, among other things, antibiotics, and he was discussing why his company should not be subject to tariffs.

It is important that we be intellectually honest with each other. The products of which I speak are made in China because the United States made a choice, as a society, not to produce them domestically. The last plant in the United States closed decades ago because of the environmental and health regulations made it virtually impossible to manufacture these products…

China has invested heavily in facilities and infrastructure to enable the manufacturing of these products. Coupling this with the focused training of human capital, China has created a mature environment to manufacture these products.

Teo is correct. What happened in the last twenty five years, through a variety of legal changes, was the creation of a globalized Just-In-Time economic system with pockets of hidden risk everywhere. And largely it happened because American and European policymakers enabled it through consolidation and the creation of the World Trade Organization.

This globalized system is coming apart; we have very little visibility into the production and distribution because in the West we’ve relied purely on financial markets for information. Now the stock market has noticed there are problems, so it’s a bit panick-y out there. Going forward, I’ll be doing an analysis of items for which we are dependent on China, and I’ll have more soon.

Here are some observations based on talking to some supply chain and logistics professionals. They are contradictory, because no one has a complete picture of what’s happening in China.

In some sectors, production is simply not returning. For example, production of kitchenware, an industry that is located primarily in China, has collapsed. The government has pushed factories to reopen, but workers are not returning to work. In terms of logistics and shipping, I’ve heard different indications. One air freight specialist told me that though there are truly large backorders in the U.S. waiting to be flown to China, air freight operators are beginning to dig themselves out. Cathay Pacific, for instance, has cleared its backlog of inventory from Chicago, and that’s the major operator out of Hong Kong. Still, it’s really bad, steamship lines are losing $400 million a week and logistics companies with weak balance sheets are going to go bust. Moreover, because airplanes and shipping containers are used in global routes, from say Shanghai to Chicago to Frankfurt, cutting out the China leg ends up eliminating U.S.-European trade as well. It is, as I’m told, “disruption anything like we’ve experienced in our history.”

Production levels are probably uneven. In some areas, like Wuhan, production is still shut down, while in others capacity might be at 50% or 70%. So depending on what you need and where it’s made, you might be able to get access. Of course, we don’t really have visibility into China, and their data isn’t particularly reliable. Experts I talk to seem to believe that their trend line of lower disease rates is real, but also warn that it could flare up again as people go back to work. It could be like experiencing a big wave crashing on you, only to see another big wave right behind the first. Or not.

The long-term effects of the supply chain disruption aren’t obvious, but corporations are beginning to accelerate plans they had on the shelf to move away from dependency on China. For a few years, largely because of Trump and more coercive Chinese actions, Western corporations have been considering diversification of supply chains, and making plans to move production into other countries, most notably Vietnam. But they mostly haven’t pulled the trigger, because it’s expensive and difficult. I suspect that this event will induce them to do so.

More soon.

A Merger Boom

Lots on the merger front.

  • Intuit-Credit Karma: This week, Intuit, which makes personal finance software and tax tools, announced a $7 billion acquisition of Credit Karma. Credit Karma offers credit reporting services and a variety of other personal finance tools. This is obviously and comically illegal. Intuit dominates tax preparation services, and Credit Karma does free tax preparation services. So Intuit is just buying market power, as it did when it bought Mint and let the product sit there with no improvements.

    Antitrust agencies should be embarrassed that Intuit is confident enough to even propose this merger. Much of the tax preparation business probably shouldn’t even exist; the government has our tax information already, so filing tax returns is, at least for most people, an unnecessary annoyance designed to buttress Intuit’s bottom line.

  • The Federal Trade Commission… It’s ALIVE! Along with the bad is the good. The FTC is suing to block a joint venture of two publicly traded coal companies. The FTC is beginning to get more aggressive, because they are noticing anger and attention from Congress and the public. Pressure does actually work.

  • An HR Software Platform Monopolist? Kronos and Ultimate Software, both controlled by the same private equity firm, are merging in a $22 billion deal. Kronos is the leader of workforce management software, with what I’m told is roughly 60-70% of that market. They also have a sub-licensing agree with ADP, which essentially runs their software under a different name. Kronos is a roll-up, buying nine different corporations since 2016, so they can manage the ‘hire to retire’ cycle of an employee. They do software for applicant tracking, HR records, scheduling, payroll, tax, timekeeping, attendance, retirement, and benefits management. And naturally they have an app store, as all the big software players do these days.

    With a full suite of products, Kronos can now exclude other players in different segments of the market. If you have a time and attendance product, but not a great payroll service, you may increasingly find it hard to do business, or vice versa. This seems like IBM’s control of computers in the 1960s, when it bundled products together to prevent entrants in segments like software, or Microsoft in the 1990s, with control of Windows, Office and Explorer. Kronos will build, maintain and extend power by controlling a platform and the applications on top of it. My guess is Kronos will argue for the benefits of integration, as Apple does.

  • Consolidation of Brokerages: Morgan Stanley bought E*Trade, which is a follow-on effect of Charles Schwab buying Ameritrade. Last year, Charles Schwab cut its brokerage fee to zero, which crushed margins for its smaller competitors Ameritrade and E-Trade. The next month, Schwab bought Ameritrade. And now, E-Trade is getting bought, because it can’t survive on its own with such a price war.

    Note, however, that Schwab was not so much cutting consumer prices as engaging in what looks like predatory pricing-ish, which is to say, cutting price in one area to gain market power, while raising it in another area. Schwab finances itself not by charging fees to clients, but by self-dealing. Schwab encourages its clients to buy Schwab mutual funds and money market funds, and then it hides its fees in those products. Clients, however, don’t always realize that free stock trades from Schwab come at a hidden price. So when Schwab cut its fee to zero, the enterprise value of Ameritrade dropped, and it was able to buy Ameritrade on the cheap. And now E-Trade is gone as well.

  • Discriminatory pricing in microchips: Someone sent me this discussion on Hacker News about how NVIDIA charges different prices for similar chips, depending on whether you’re a gamer or you’re building a data center. Here’s the Nvidia license: No Datacenter Deployment. The SOFTWARE is not licensed for datacenter deployment, except that blockchain processing in a datacenter is permitted. This isn’t necessarily illegal, because laws these days are suggestions. But it sure is, how to put it nicely, differentiated.

That’s all, folks. I usually try to stick to one theme, but there’s lots of stuff happening.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I got this great note from Yale economics professor Florian Ederer on innovation.

Although we disagree on many issues related to antitrust, I am an avid reader of your newsletter. Yes, I am an economist, but we're not all bad…

The idea that large incumbents don't want to innovate because such innovation would threaten their own cash cows goes back all the way to Kenneth Arrow (an economist that you would have liked) in the 1960s.

In our "Killer Acquisitions" paper we document the same effect in pharmaceuticals where dominant incumbents acquire small entrepreneurial startups and then kill the innovation because it would otherwise cannibalize the profits of their own existing drugs:

There are also other papers that show that increasing concentration is terrible for innovation in pharma ( horizontal mergers not only decrease the innovation intensity of the merging parties, but even the incentive to innovate of other competitors.


Florian Ederer
Associate Professor of Economics
Yale University, School of Management

National Champs or National Chumps: US Big Business vs China

How important are 'economies of scale' in production and innovation?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to invite you into a debate within Congress in which I was a part.

First, some house-keeping.

  • I wrote a piece for American Affairs on exploding conflict within corporate America over concentrations of power.

  • I also did a book talk with the former Chairman of the Federal Communications Commission, Reed Hundt, on the rise of populist politics. In this one I went over the massive rebellion called the Bonus Army, which was the Occupy Wall Street of the Great Depression.

  • Please keep sending me info on what you’re seeing in terms of supply chain disruptions. I think that is one of the biggest stories in the world right now.

  • Finally, Substack has implemented a comment feature, so if you want to talk about this issue with other readers, just click on the headline and there’s a comment box at the bottom of the page.

And now…

National Champions or National Chumps?

There’s a debate these days in the national security world over how to address the rising power of Chinese industrial might. Many of our domestic monopolies - particularly Google, Facebook, Amazon, and Microsoft - argue that we have to protect our big business scale to face off against Chinese scale, particularly in high technology markets. In Europe, you see this same notion, the idea that Europe must have a European Mark Zuckerberg to face off against Mark Zuckerberg and Chinese big tech. Doing so is called the ‘national champion’ argument, which is to say, we should promote and protect our biggest to match up with their biggest.

This question is given added importance because of the supply chain disruptions we’re beginning to see across the economy due to the coronavirus. I was invited to debate this problem in Congress by Senator Marco Rubio’s staff. Rob Atkinson of the Information Technology and Innovation Foundation, who wrote a book called Big is Beautiful, took the other side.

That’s me, in the center of the photo. Here’s what I had to say.

What Is Our Goal Versus China?

Thanks for inviting me.

China’s goal is to concentrate power, both within China and over the American and European industrial commons. In responding, the question we have to wrestle with is not just how to beat China, but what is our goal? What is competitiveness? And what is our actual problem?

The actual problem is twofold. Roughly forty years ago, we stopped seeing the relationship between democracy and private economic power domestically, which enabled the roll-up of power into domestic monopolies. And then in the Clinton, Bush, and Obama administrations, we stopped seeing the relationship between security and economic power globally. All of this goes under the philosophy of neoliberalism, and it manifested itself through trade, antitrust, and regulatory policy.

In 1998, Bill Clinton allowed Exxon to buy Mobil, helping to recreate a good chunk of the Standard Oil empire. In 2006, someone asked Exxon Lee Raymond why he wouldn’t build more refining plants in the U.S. for security purposes. He said, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”

In other words, today we have an open and largely ungoverned American political economy dominated by financiers and monopolists with no loyalty to United States interests. And now we are encountering aggressive authoritarian state capitalists who will not hesitate in exploiting our own corporate giants. Disney, for instance, not only makes most of our billion-dollar movies but does so according to the whims of Chinese censors.

Let’s start with domestic concentration. Over the last two decades, 75% of U.S. industries have experienced an increase in concentration levels. You can see it in everything from syringes to cheerleading to missiles and munitions. Such concentration results in a host of problems, like low productivity growth, less firm formation, and regional inequality. Hidden risk is a classic feature of monopoly, because a monopoly means putting all your eggs in one basket.

The increase in concentration is obvious if you pay any attention to business, but there is a sort of ‘believe me not your lying eyes’ quality to the debate. There are an endless army of economists who explain how concentration doesn’t exist or isn’t a problem, but these arguments are often parlor tricks of only measuring the benefits of scale.

For instance, in Rob’s book Big is Beautiful, one of the key examples of the importance of scale is Boeing. Boeing is a roll-up of aerospace companies, and it first crossed $100 billion in revenue in 2018 as America’s leading exporter, as Rob was writing his book. Like large banks on Wall Street, Boeing’s size and market power, which mistook for innovation and health, was masking an underlying deterioration of the corporation’s ability to make airplanes. Much of the strength of monopoly is often a mirage, based on refusing to look at hidden risk.

Hidden risk is now everywhere. According to the Pentagon, we now have sole sources of domestic supply for large numbers of military inputs, from flares to high voltage cable, fittings for ships, valves, key inputs for satellites and missiles, and even material for tents. Drug shortages tripled between 2005 and 2010 and continue to grow. More than 100 drugs were in shortage as of January 2020.

And this hidden risk has enabled China to acquire power. Now all the CCP has to do is gain control over a sole source producer. China makes a host of key inputs for DoD missiles, satellites, and other defense manufacturing programs. Our ability to fight a war with China in some ways hinges on whether Chinese companies are willing to keep selling us ammunition. The same is true in medicine. Our hospitals are critically under-sourced for things like respirators and masks, as well as chemical inputs for drugs, most of which are made in China.

We have also learned helplessness among our policymaking elite.

Here’s Assistant Air Force Secretary for Acquisition, Technology and Logistics Will Roper’s plan for dealing with the F-35 disaster, and a lack of competition in military aerospace. “I don’t think we’ll have a new prime come in, but maybe a company that’s founded by a bored billionaire that wants to build cool airplanes just because.”

In other words, not only do our top military officials have no control over what China does, but they have little ability to source domestically. I can assure you, that is not how we won World War Two.

One solution to this situation is to have us mimic China’s authoritarianism. Atkinson, for instance, wants concentrated corporate power, but he wants the hand of the state to fuse with it. You don’t have to take my word for it. His book is full of effusive praise of Marxists, as when he noted “Surprisingly, it’s the neo-Marxist scholars who present a more accurate picture of competition.”

One of his icons is socialist John Kenneth Galbraith, and Galbraith was a fan of what was called the convergence school of thinking in the 1960s, a view that in terms of political economy, there really were no differences between the Soviet Union and the United States. American business and Soviet enterprises were, in his view, the same.

The Chinese present a challenge of state capitalism that is fascist in nature, a fusion of the state and the corporate state. We can mimic them, but at great risk. As Woodrow Wilson put it, “Once the government regulates the monopoly, then monopoly will see to it that it regulates the government.”

Antitrust and Innovation

There is a better alternative. We can meet state capitalism with liberal democracy. That means that government will have a strong role in the market, but by focusing on protecting us from concentrations of power abroad and domestically. This is in fact the strategy the U.S. used to become the world’s technological leader in the first place.

From the late 1930s until the 1970s, the U.S. did two basic things to encourage innovation. First, we decentralized innovation through an aggressive antitrust and procurement regime. In the late 1930s, Antitrust Division head Thurman Arnold systemically restructure American industry with 1,375 complaints in 40 different industries. During World War II, for most of the major war industries, including airframes, ships, tanks, trucks, ordinance, and electronics, there were at least a dozen major prime contractors. We fought Nazis abroad, and robber barons at home.

There were break-ups, merger prohibitions, and policymakers focused on dispersing know-how. I got a list of antitrust cases in 1952, and here are some of the industries where the DOJ antitrust division forced an end to anti-competitive uses of patents:

Electric lamps, glass bulbs, tubing, argon gas, machinery, electrical equipment, fluorescent lamps, soap and synthetic detergents, variable condensers (the tubing devices used on radios to select broadcasting stations), chlorinating equipment, braking systems, electrical equipment, powder, and paste for the detection of defects in metal parts, wrinkle finishes for paint, enamel, and varnish, latex, prismatic glassware and illuminating appliances, peach pitting machinery, fluorescent materials, metal abrasives industry, machine tools, dental impression powder, telescope grocery carts, sheet chargers used to feed sheets of metal materials to rolling mills, etc.

Second, we spent a lot of government money on R&D. During World War II, the government basically paid to replace all our machine tools. In the first half of the 1960s, as Silicon Valley historian Margaret O’Mara points out, research and development made up more than 10% of the Federal budget, largely because of space programs. The U.S. government was the biggest and most important venture capitalist, and the biggest and most important customer of technology.

One consequence was Silicon Valley.

For instance, AT&T’s Bell Labs invented the transistor, but it had problems manufacturing them because its leaders focused on maintaining its regulated monopoly. An antitrust suit forced AT&T to share its patents. Fairchild semiconductor, a small company that birthed Silicon Valley, took the market lead. By 1963, the price of silicon chips fell from $1,000 to $25, entirely because of demand created by the Apollo and Minuteman programs. Other industries could now afford them. And in fields with compulsory licensed patents the number of follow-on patents exploded in subsequent years, mostly from small companies. There was also direct spending; the government, for instance, created the first micro-processor.

During the Clinton administration, we threw all of this away as libertarians finally conquered our institutions. They made arguments how big was good, about how markets are natural institutions, and about Schumpeterian creative destruction, arguments we hear today. And they won.

As Lucas Kunce and I detailed in the American Conservative, Clinton encouraged a roll-up of prime contractors, and dozens of primes combined into the few we have today. Lockheed became Lockheed Martin, buying up 17 other defense divisions. Subcontractor mergers quadrupled from 1990 to 1998, driven by private equity.

This radical consolidation mirrored the shift that was happening in the commercial world. Corporate raiders had been layering corporations with debt since the 1980s. In the 1990s and 2000s, the “LBO” boys, as one manufacturer told me, went around industrial states and shipped off factories to China. Tens of thousands of them from 2000-2014.

And that’s the story. Now how did we get so confused about what was happening?

Economies of Scale

Well one way to tell the story is that we got confused about economies of scale. There is technical scale, which means massing men and capital in a way that produces more operational efficiency or innovation. There is legal scale. And too often we hear ‘economies of scale’ and confuse the two. Having a big factory can be operationally efficient. But holding company which owns a bunch of such factories and exploits market power can be slothful.

Take General Motors. In the early 1990s, its average plant produced 206,000 vehicles a year. Honda was about a third GM’s overall size, but its average Japanese plant time made 650,000 vehicles a year. GM was the least efficient producer, with its plants about 40% less productive than Honda’s. GM made arguments about scale, premised on the idea that policymakers wouldn’t see the difference between legal and technical scale.

In the 1980s, during his tenure on GM's board of directors, Ross Perot talked about the problem of size and management: "At GM, if you see a snake, the first thing you do is to hire a consultant on snakes. Then you get a committee on snakes, and then you discuss it for a couple of years. The most likely course of action is-nothing. You figure, the snake hasn't bitten anybody yet, so you just let him crawl around on the factory floor."

Technical economies of scale are not necessarily related to the corporate structure for example, the TCP/IP protocol scaled by a factor of 10 million since it was created in the early 1970s by the government. Corporations preferred walled gardens (DECNet, WangNET, HPNet, Xerox OIS, etc) but highest scale network - the internet itself - happened outside of the legal form of the corporation.

It’s not just operational scale. Bigness often cuts against innovation, or the question of whether Hamlet could be written by committee. Capital and skilled people combined often do interesting things. The question is whether pairing capital, skilled people, and manufacturing capacity into one giant corporate legal arrangement with market power is optimal. That’s unclear.

When the first investor in Alexander Graham Bell’s new venture tried to sell the telephone to telegraph giant Western Union, the head of Western Union replied, ‘What use could this company make of an electrical toy?” It was only when Bell’s company began taking market share from Western Union’s other products that the giant entered the telephone market. A certain type of political economy based on competition in communications network services in the 1870s “birthed four “blockbuster” innovations—namely, the quadruplex (or broadband) telegraph, the telephone, the phonograph, and the electric power system.” Such innovation did not happen in Europe, which had more monopolistic network systems.

From the other side, Alfred Sloan, the head of General Motors, told his sales committee in 1925. “You have no idea how many things come up for consideration that are discussed and agreed upon, but too frequently we fail to put the ideas into effect until competition forces us. Sometimes I am almost forced to the conclusion that General Motors is so large and its inertia so great that it is impossible for us to be leaders.”

A consultant told me about a '90s with someone at Microsoft. “I parroted the line that Microsoft was using its monopoly to stifle innovation in the market, which it was, of course. My conversation partner observed that the stifling of innovation within Microsoft to protect cash cows was even greater.”

This is a common story; Xerox didn’t commercialize its graphical user interface innovations, Apple did. IBM and Microsoft, like General Motors, followed innovators in the computer industry rather than being leaders.

Finally, in over-emphasizing legal scale, we didn’t just sacrifice innovation and operational efficiency. We increasingly allowed private power to decide key social questions. Mark Zuckerberg may innovate in ways that enable censorship or concentrate wealth or speech patterns. Chinese censors control what our corporations say.

The American political project, up until the 1970s, was based on attempting to decentralize both public and private power. The reason America developed technological prowess in the first place is because of this. Innovation is, at its heart, the liberty to tinker, an educated populace free from domination by either private or public masters.

Today, we are waking up to terrible problems. The only way to address them is how our forebears did. And they did not run into arms of Marxist scholars or mimic Chinese autocrats. Instead, they fought for their republic. That is how we defeat China. More importantly, it is how we keep ourselves free.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I started collecting a list of products that are likely to be impacted by the China supply chain problem. Send me more. Here are a few.

Pet food. Garden hoses. Antibiotics. Printed circuit boards. Flat panel TVs. Electric motors. Roku streaming devices. Pump/valve parts for oil/mining machines. Air conditioning parts. Certain snow removal tools. Germanium for semiconductor wafers. Ball caps, sports bags, backpacks, baseballs, softball, hockey sticks, lacrosse gloves, batting gloves, golf bags. Certain semiconductor machine tools. Bicycle helmets and safety equipment. Tires.

How an AT&T Lawyer Helped Monopolize Cheerleading and Induce Drug Shortages


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about Debbie Feinstein, the Obama-era head of antitrust enforcement at the Federal Trade Commission responsible for our current monopoly crisis in everything from cheerleading to drug stores to pharmaceuticals. And through Feinstein, I’m going to show that monopolies are not natural, but are a result of conscious policy choices.

First, I was on Al Jazeera’s The Bottom Line with Steve Clemons to talk about Mike Bloomberg and billionaires in politics. Watch if you’d like. I also replied to Senator Marco Rubio’s industrial policy plan on China in The American Mind.

And now…

How an AT&T Lawyer Created a Cheerleading Monopoly

I’ve been doing a lot of research on cheerleading, as readers of this newsletter know, and it’s beginning to hit two different audiences. One group are people involved in cheerleading, gym owners, coaches, Varsity Brand ex-employees, and so forth. The second are antitrust experts and reporters; Emily Stewart at Vox noted the cheer monopoly yesterday in a piece not on cheerleading, but on the relationship of monopolies to the economy.

These two audience are linked, because how the business of cheerleading is structured, like how our pharmaceutical or technology industry is structured, is a function of law. I’m going to try to bring these two groups together by showing how Debbie Feinstein, a powerful lawyer in D.C., helped to concentrate the cheerleading industry as part of her career concentrating a whole series of other industries.

The basic story of the cheerleading monopoly is as follows. Decades ago, a corporation called Varsity Brands began buying up its competitors in cheer competitions and apparel. It used its control over competitions to give itself an advantage in selling cheerleading apparel. In addition, Varsity also financed governing bodies for cheerleading, and gained control over distribution with exclusive deals to gym owners for its products.

The key moment for Varsity was in 2015, when it bought its last and largest competitor, Jam Brands. Jam Brands had its own competitions, and it served as a place where competitors to Varsity, like Rebel Athletics, could market clothing. Once Jam Brands came under Varsity’s control, it ended the marketing arrangement with Rebel. After this merger, Varsity essentially had total power over the sport, including setting terms and conditions over pricing for competitions and compensation for judges.

A Merge to Monopoly

Varsity should not exist in its current form; many of its mergers, and certainly that of Jam Brands, were likely illegal. We have a law designed to stop anti-competitive mergers. It’s called the Clayton Act, and it is enforced by the Department of Justice Antitrust Division and/or the Federal Trade Commission (FTC). Such investigations usually involve soliciting feedback from industry and asking questions of the merging parties. Most mergers are cleared, while a few, particularly in concentrated industries, are challenged.

In the case of the Varsity-Jam Brand merger, the transaction reduced the number of players in a market from two to one, a ‘merge to monopoly,’ so it should have received real attention. And there were at least rudimentary investigations. I got ahold of a complaint from 2015 by a former gym owner and Varsity ex-employee explaining, in detail, to the DOJ and FTC, what Varsity was doing. The complainant predicted *exactly* what would happen, and noted that Varsity had bought dozens of event producing and uniform production companies as part of its plan to monopolize the industry. (You can read the complaint here).

The key for today’s merger analysis is consumer price, so the crux of the complaint were these sentences: “Cheerleading uniform prices have gone through the roof due to Varsity forcing their company on to unsuspecting gym owners…. Competition costs are so high that many athletes have to quit the sport due to the cost. (Competitions and Uniforms are the largest fees any athlete pays in respect to being on a team.)” Enforcers should have recognized that higher consumer prices was a signal of market power, and so this merger was worth blocking. But they did not. Why? Who received the complaint, and who was in charge of the bureau of enforcement when Varsity formed its monopoly?

The answer, as far as I can tell, is a lawyer named Debbie Feinstein, who DOJ Antitrust was telling complainants to contact about the case. At the time of the merger, Feinstein was the head of enforcement for the FTC, and she has exactly the personality of the kind of person you want as an enforcer. She’s a very hands-on manager, with a forceful personality, deep knowledge of the law, and an aggressive advocate for her clients. She is a respected in the community; trade publication Global Competition Review called her “lawyer of the year,” and Obama DOJ Antitrust chief Bill Bauer said she is “one of the leading antitrust lawyers in the country.”

And yet, despite her eminent qualifications and personal grit, Feinstein comes from a world where enforcing the antitrust laws doesn’t mean protecting competition in markets. For her, it means protecting a specific pro-monopoly vision of the law.

Before she was at the Obama FTC, Feinstein was the head of antitrust at a firm called Arnold and Porter, where she represented clients in the “retail, food, consumer products, healthcare, medical devices, chemicals, industrial equipment and services, and automotive parts” industries, like GE, NBC, Unilever, and Pepsi. Arnold and Porter is, like several of the big law firms in New York and D.C., part of the world of biglaw, the repository of legal and governing expertise upon which both parties draw. It’s a shadow government, with people out of power working in biglaw, and then returning to public service to punch their ticket.

The philosophy of much of the biglaw antitrust world is that technocrats should be in charge of our industries, and antitrust law should be narrowly constrained. When in doubt, defer to merging parties, because in their view it is inappropriate for government to interfere with the liberty to monopolize. Biglaw types work for monopolies, structure monopolies, and tend to believe that monopolists deliver better prices and quality for consumers. Feinstein is part of this world, she largely agrees with the philosophical underpinnings of it, and when she was in public service, she believes in concentration as a social virtue. While at the FTC, for instance, Feinstein oversaw one of the key mergers allowing CVS to become even more dominant in health care.

At roughly the same Feinstein helped allow Varsity’s merge to monopoly, reporter Dave Dayen wrote a profile on her, noting that “during Feinstein’s tenure, the FTC has largely abandoned its attempts to block mergers.” Dayen didn’t mention Varsity-Jam Brands, instead focusing on drug prices and mergers. Here’s the story:

Earlier this month, the FTC let Dyax’s $6 billion acquisition by Shire Pharmaceuticals go through, choosing to take no action before the antitrust waiting period lapsed. Even Wall Street expected a challenge; when it didn’t transpire, Dyax’s stock jumped 13 percent.

It was the latest in a rush of mergers and acquisitions in the industry. There were $221 billion in pharma mergers in just the first half of 2015, even more than the $162 billion for the entire previous year.

And consider what these giant companies do: Valeant Pharmaceuticals has acquired, licensed, or agreed to co-promote over 140 drugs since 2008, and as part of its strategy it buys the rights to rival drugs and increases the prices overnight by as much as 525 percent.

Horizon, another drugmaker, sells a medication called Duexis, which costs $1,500 a month, even though its component drugs cost no more than $40 a month. In 2013, Horizon acquired Deuxis’ main competitor, called Vimovo, and raised the price 600 percent.

Questcor performed the same trick by buying the main rival to its immune-deficiency drug. The FTC never challenged any of these purchase agreements.

People complain a lot about high drug prices, and rightfully so. But there are now even more serious issues. I wrote about supply chains and China last week, in particular medical shortages. This problem has been with us for over twenty years, despite Congressional action. Why? “Drug shortages exploded in 2001” because of mergers, according to pharmacist Erin Fox. Consolidation in this space has led to less production, and to the elimination of niche production and/or the offshoring of production to China. To the elite antitrust bar, being concerned that concentration might reduce resiliency of a supply chain sounds like the irrelevant whining of a non-expert, much like the arguments from a cheer industry participant observing problems with a merge to monopoly.

Today, Feinstein is once again a partner at the biglaw firm Arnold and Porter, and the marketing materials on the site show that she’s been key in host of mergers. She was an architect in helping AT&T buy Time Warner, as well as in the rolling up of the dialysis industry in the sale of NxStage Medical to Fresenius Medical Care Holdings. She’s been part of a host of other mergers, but the gist is that Feinstein basically encourages consolidation whether she is in or out of government.

The biglaw world of antitrust lawyers try to stay out of the limelight, but it’s important to locate accountability in any political system. The reason Varsity overcharges parents and coerces gym owners is also the reason our drug supply chain is brittle and weak, and it’s the same reason we have systemic problems throughout the economy, from Boeing to Disney to CVS. The philosophy of our enforcers, even when they are talented and driven like Feinstein, is pro-concentration.

Last week, in preparing this piece, I asked Feinstein about the Varsity merger, since she received the complaint. She responded, “I cannot comment.” People like her rarely do. They are not on the ballot, no one will ask about them on Presidential debate stages, they are not in the spotlight, and yet their decisions reshape American industries and American communities, in everything from pharmaceuticals to drug stores to technology to cheerleading.

And that is probably one reason Americans are so frustrated with politics.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. Last week I asked for people to send stories of chokepoints emerging from China’s shutdown over the Coronavirus. Here’s an email from a manufacturer’s rep with experience selling in various industries on the impact of China’s shutdown. Everything from printed circuit boards to garden hoses to plastic molding is being delayed.

Garden Hoses. I no longer supply this industry but I know that an intractable percentage of hose making comes out of China. First the tariffs forced a hunt for non-China makers. Only a trickle of the production could move. Now with extended plant shutdowns, the spring watering season may be hurt. Should a region have a warm, dry spring, the hoses needed will not be there. An opportunity lost in-season usually does not come back later that year. Several makers have US plants for high end hoses. The cheaper inner layers of hose sandwiched between vibrant green skin and the purest plastics touching the water use recycled content, often from China.  

Plastic molding choke point: A big (now much bigger) consumer product maker closed a huge plastic injection molding plant in PA in ’98 and moved all the components to China. Much lower tooling prices saved capital expenditures. Low unit cost and subassembly labor trimmed top-line costs. I molded millions of parts for 20 years. The tariff-by-tweet precipitated a massive migration, pulling hundreds of tools from China at a significant cost (One-time costs to pack, ship, re-validate tools, etc.). Labor costs are up. Resin prices too. Factory productivity lags the generational improvements developed in China since the 90s. The new choke point seems to be the other SE Asia countries flooded with transferred capacities. Getting local supply chain up and things like port capacity and even traffic jams delaying shipments all disrupt these moves in the short term – and perhaps longer. China had a well oiled machine building roads, ports, hotels and all kinds infrastructure fueled by the central government’s coffers. It will take a long time for Thailand, Vietnam, Cambodia etc. to digest the force-fed move. And anecdotally, India may take years to get to the urgency and skill levels and may never get to the  level of business travel western visitors have come to expect. A billion people, English common law, a democracy, education: All the ingredients but none of the cooks.

Printed Circuit Boards Assemblies choke point. Tons of work migrating from China as noted above. But all the diodes and doodads soldered on top come from china. During the post-tweet resourcing efforts, component suppliers were swamped with quote requests. Multinational A wanted to move 10 products. They quoted 5 firms. Those firms have three options in places as disparate as Mexico, Taiwan or Asia. 10 x 5 x 3 makes for 45 RFQs to the component suppliers, an inundating choke point on normal response times while inflating the perceived demand. In the time of Coronavirus, a similar push for needed answers while suppliers and sub-tier suppliers are shorthanded or working from home or waiting authorization to re-open. The choke point includes basic data like on-hand inventory and a reliable ship date. Those answers usually take less than a day. We have 14-21 day lags this week.  

General Labor choke point: I am told in Dongguan City that companies cannot hire new workers. In the weeks after the Lunar New Year worker mobility peaks. Job hopping for better pay or working conditions happens every year. With worker return rates below 50% in the first few days after opening on Monday, one would hope to scoop up warm bodies to man the equipment and assembly lines. But government has banned new hires to keep job seekers from traveling to the manufacturing centers in the cities. A zombie-like cohort of walking dead coronavirus carriers milling about the train station or industrial parks could spike infection rates and multiply hot zones. The factory owners are crying for workers but government has choked them off.

Travel Choke Points: One great strength in Southern China comes from a class of professional managers commuting weekly from the first world city of Hong Kong. Hong Kong will now enforce a 14 day home quarantine for residents coming out of China. So the go-up-on-Tuesday/come-home-on-Friday routine will only work once. The managerial staff runs well down the ladder to programmers and operations teams. This goes well beyond the corner office and constricts every level of hands-on management. I kind of imagine the factories as a cross between a snow delay and a substitute teacher: nowhere near enough will get done…for weeks. Similarly, Vietnam will not issue Visas to HK or China residents. All those Trump-driven migrations to Vietnam will not have managers from the home office on-site until the virus scare ends. Good luck getting that new plant running without on-site decision making.

Coronavirus and Concentration: Should the FDA Have Anti-Monopoly Authority?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

This one will be short piece on how the coronavirus is causing policymakers to wrestle with the problem of monopolization. But first, a follow-up on my piece on the monopolization of the podcasting industry. The Ringer has already announced podcasts exclusive to Spotify, which is what you’d expect if it’s a monopoly play.

And now…

Medical Monopolies and China

I write a lot about China, everything from how China is spurring Trump to embrace industrial policy to how China organizes IP rights to take advantage of American tech. But mostly I’m obsessed with how we can’t make key products in the U.S. anymore and are dependent on Chinese supply. What we can’t make includes everything from bibles to prom dresses to more specialized products. I wrote last July:

The list of products and commodities companies say they can no longer make in America is long. Nylon products, optical scanners, consumer robotics, electronics, all types of clothing, specialty chemicals…

So we’re dependent on China. The coronavirus introduces a special twist on this dependency problem, because we may need a lot of supply for certain kinds of product all at once. And as Dave Dayen in the Prospect noted, most of our medicine and medical equipment is made in… China.

China produces and exports a large amount of pharmaceuticals to the U.S., including 97 percent of all antibiotics and 80 percent of the active ingredients used to make drugs here. Penicillin, ibuprofen, and aspirin largely come from China. Last month, the medical supply firm Cardinal Health recalled 2.9 million surgical gowns “cross contaminated” at a plant in China; the blood pressure drug valsartan also saw shortages recently, thanks to tainted active ingredients at one Chinese plant. The combination of supply chain disruptions and increased demand at hospitals if coronavirus spreads to the U.S. could prove devastating.

In a dark irony, most of the world’s face masks—now ubiquitous in China as a precaution—are made in China and Taiwan, and even for those made elsewhere, some component parts are Chinese-sourced. Shortages have led China to declare the masks a “strategic resource,” reserving them for medical workers. U.S. hospitals are “critically low” on respiratory masks, according to medical-supply middlemen. Lack of protective gear could increase vulnerability to the virus, and the one place on earth suffering from production shutdowns is the one place where most of the protective gear originates.

Former Trump Food and Drug Administration Commissioner Scott Gottlieb testified before the Senate yesterday on these problems. His testimony is a sobering look at the likelihood of a pandemic. As someone who thinks about policy, I noticed what he said about how to address supply chain choke points for chemical inputs for drugs or components for medical devices. On a very basic level, he argues, we need to know where these chokepoints are. Here’s what he said:

This is where Congress can help, by giving the FDA authority to look not only at the supply of finished products but to also identify circumstances where key components may have only a single source across an entire category of products.

In other words, Gottlieb, a conservative who worked under both Bush and Trump, wants the FDA to have the authority to uncover hidden monopolies. Now, the Federal Trade Commission already has this research authority, it just doesn’t use it very often. And the United States Trade Representative has information on our dependencies on China, because when they threatened tariffs large numbers of companies came to them during a notice and comment period whining about how such dependencies would hurt their business. So we have some information about the scale of the problem. Just not enough.

The FDA should have this authority, but even in its absence, the FDA could start by asking USTR to give them information about supply choke points, or it could suggest to the FTC that they initiate a study across the medical supply and pharmaceutical industries for points of monopolization. One way to get this information is more basic; members of Congress could just start asking corporations directly and my guess is they’d respond voluntarily.

Regardless, this coronavirus situation shows a very basic point about our concentration crisis . The strongest reason to address monopolies isn’t because monopolies are unjust, but because they are dangerous. And we may be about to find out just how dangerous they are.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. If you work in an industry and see up close dependencies on China, send me an email about it.

The Sprint-T-Mobile Merger: A Jump the Shark Moment for Antitrust?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

I was going to write about the big tech investigation in Congress, but today a New York judge, Victor Marrero, approved the merger between Sprint and T-Mobile, and that deserves comment.

But first, some housekeeping, or rather, an exciting announcement. I’m part of a new organization called the American Economic Liberties Project, which David McCabe in the York Times profiled here.

As you know, I spend a lot of time talking about fear in various industries, often fear of retaliation from the powerful. There are a bunch of political advocacy groups that address civil liberties; AELP will focus on re-centering our politics around freedom in the commercial realm. AELP will be run by my colleague, Sarah Miller, who is the focus of the profile.

As FDR put it, “We stand committed to the proposition that freedom is no half-and-half affair. If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the marketplace.”

And now…

Jumping the Shark

In season five of the sitcom Happy Days, the writers had the main character Fonzie jump over a shark while on waterskis, coining the term ‘jump the shark’ to denote a moment when something that once made sense becomes stupid, irrelevant, and self-evidently ridiculous. That’s what just happened with libertarian antitrust doctrine. A New York Judge, Victor Marrero allowed Sprint and T-Mobile to merge in an already concentrated telecom industry. His decision is fascinating, mostly because it’s so badly done, and reveals, unwittingly, both the hollowness at the core of modern antitrust doctrine and why we see concentrated power across the American economy.

Just a warning here. I’m not going to do much merger analysis, you’ll just have to trust me that cell phone companies like money. If you don’t buy that underlying assumption, then the rest of this won’t make sense to you.

Why This Merger Is Bad

From an industrial organizational perspective, the problem with the Sprint-T-Mobile merger is obvious. Mobile phone services is a very concentrated industry. It has four main players, and the merger seeks to bring that number down to three. As John Kwoka shows, mergers in concentrated industries tend to raise prices, which is a no-no even under the narrow antitrust standards we have today. T-Mobile is what is called a ‘maverick firm,’ challenging the industry with aggressively low prices. Going from four to three in a concentrated market, when one of the players merging is a maverick, is *exactly* what the laws against illegal monopolization are designed to prohibit. Yet Marrero cleared it.

The main evidence against the merger was that executives were going to raise prices. How do we know? Well the head marketing executive from Sprint texted a colleague not only on how excited he was to raise prices after the merger, but how everyone in the industry would raise prices. As it turns out, corporations don’t like competition. Instead they prefer money. I know, crazy, right?

Regardless of what you think about the industry, let’s look at the underlying logic of the judge. The Clayton Act, which is our main anti-merger law, prohibits mergers that may substantially lessen competition. There are various ways to understand what that means, like market share thresholds, but the gist of the law is that if there’s a reasonable chance a merger will reduce competition, especially in concentrated markets, it shouldn’t be let through. Executives excited to hike prices would seem to be evidence of a good probability it’s a bad merger.

Marrero’s view of how this would work out is different.

In this Court’s view, in the intensely competitive and rapidly changing environment in which complex and dynamic markets operate, the anticompetitive business strategies and market effects Plaintiff States predict are unlikely…

Against a backdrop of T-Mobile’s longstanding business strategy as the self-styled maverick and disruptive Un-carrier, it would be counter-productive, even self-defeating, for New T-Mobile soon after the merger to invest, innovate, and improve network speed, capacity, and quality, or to refrain from offering products incorporating the most advanced technologies, enhanced content, and improved service plans, and ultimately to lower prices, as market dynamism would demand and more reliably predict. By embarking on the polar course Plaintiff States foresee, New T-Mobile would effectively imperil its own future.

Marrero is claiming that US telecom incumbents, who pretty much face less competition that anyone in most of the industrialized world and are routinely cited for consumer protection violations, wouldn’t use anticompetitive tactics. He also just believes T-Mobile’s branding campaign - in which its CEO called the company the Un-carrier and wore magenta t-shirts, and imagines that this is the first merger motivated by altruism.

I’m being flip, but it’s just hard to take this decision seriously. At a certain point, he contrasts the ‘market dynamism’ of cell phones to other products, because telecom is complicated. By contrast, “milk is milk,” he wrote, comparing cell phones to what he imagines is a simpler product and thus a less “dynamic” market. Marrero is fooled in two ways. He falls for the branding that products like cell phones, which are actually forty plus years old, involve technology, and so he’s dealing with mystical wizards not normal businesspeople. He also ignores genuine complexity, infrastructure, and technology in agricultural markets because he doesn’t realize that food isn’t actually grown in supermarkets. He understands milk because it’s, you know, milk, but cell phones are magic.

Believe it or not, none of what I’ve mentioned so far is the most notable part of the opinion. What’s even better is Marrero’s view of experts and the law. Here’s how Marrero frames the various paid experts testifying about the deal and the amount of homework everyone had to do.

The qualifications of litigants’ specialists, impressive by the titles they have held and the tomes of their CVs fill, can be humbling and intimidating… Together, counsel and experts amass documentary and testimonial records for trial that can occupy entire storage rooms to capacity.

He goes on to note how impressive all these wonks are with their mathematical models, complimenting the various economists and technical experts who educated him on telecommunications. And then he throws up his hands and says, well both sides have such experts, so I’m going to not care about any of it. You think I am kidding, but I am not.

“How the future manifests itself and brings to pass what it holds is a multi-faceted phenomenon that is not necessarily guided by theoretical forces or mathematical models,” he writes. “Instead, causal agents that engender knowing and purposeful human behavior, individual and collective, fundamentally shape that narrative.” The net of his argument is that court should turn to their “traditional judicial methods,” which is to say, “they resort to their own tried and tested version of peering into a crystal ball.”

The evidence on telecom consolidation is clear - less competition means higher prices and worse service. But Marrero just shrugs. In point of fact, his decision comes down to his belief that the T-Mobile executives were good guys, or as he puts it, watching “their demeanor” at trial.

The great achievement of antitrust scholar Robert Bork, who structured our current pro-monopoly framework, was to subvert the law through the judiciary. This isn’t obvious, because Bork couched his arguments under the notion of bringing rationality and certainty to antitrust. “I use the word ‘science’ deliberately,” he wrote in one of his endless attacks on judges and prosecutors for trying to restrain monopoly. Bork essentially persuaded policymakers of two things. One, antitrust doctrine should be based on complex pseudo-scientific theories of economists, rather than traditional legal notions of equity and justice, or even basic common sense. It’s a science, and if you don’t know lots of math, butt out. Two, antitrust law should be judge made, especially if a judge wants to go easy on corporate concentration. If judges make law, then more democratic branches of government, like legislatures and regulatory agencies, lose power. Bork’s arguments were as much a theory of constitutional structure as anything else, a way to protect concentrated power from democratic checks.

And it worked. The reason we have concentrated power in our markets today in everything from cheerleading to movie studios is because Bork’s philosophy has been in practice since 1981. Judges have been persuaded by the libertarian notion that mergers are extremely complex scientific endeavors, and to stop a merger means to meddle with nature. Marrero has full-on bought into Bork’s ideas, and revealed how stupid they actually are. Lest you think this is some partisan jab, it’s not - Marrero was appointed by Bill Clinton.

Judges are supposed to execute the will of Congress, and Congress has been clear four times, in 1890, 1913, 1936, and 1950, that the antitrust laws are designed to protect competition, small enterprise, and economic liberty. But here’s Marrero, “Adjudication of antitrust disputes virtually turns the judge into a fortuneteller. Deciding such cases typically calls for a judicial reading of the future.” But antitrust is not about turning Federal judges into central planning agents guessing about future economic outcomes. It should be about clear standards to block illegal mergers rather than judges being impressed with CEOs who wear magenta.

There is an upside, here, even though it’s a horrible decision. A random judge, based on his gut feel about a charismatic CEO, just concentrated a swath of the American economy, which will end up raising prices for consumers and hurt telecom employees, probably within a few years (and starting with people in poverty, since prices to them are less noticeable for elites). But in doing so, Marrero accidentally noted that Bork-style antitrust is basically just a ruse, an annoying multi-million dollar costume party of economic experts dressing up in fancy clothing carrying around big stacks of paper while a judge flips a coin.

In other words, his decision destroys the Bork frame that antitrust law is based on economic evidence. And that’s why we can expect Congress to begin reigning in the judiciary, and putting forward clear bright line rules on mergers. Judges should just not have this power. And I suspect that fairly soon, they won’t.

What I’m Reading

FTC to Examine Past Acquisitions by Large Technology Companies, FTC The Federal Trade Commission is doing a study of Apple, Google, Facebook, Amazon, and Microsoft and their mergers from 2010-2019. This cuts against the Sprint-T-Mobile decision, because it will give us actual empirical evidence on how mergers work in practice.

Boeing Booked No New Jetliner Orders in January, WSJ - Looks like Boeing is feeling strain…

DOJ seeks 71 percent bump from Congress for antitrust, Politico A pro-monopoly Department of Justice Antitrust Division wants more money?

Uber fails to block California gig economy law, FT

Chairman Jerry Nadler of the House Judiciary Committee noted in Brooklyn that the House Antitrust Subcommittee investigation into big tech is serious.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

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