Pete Buttigieg's Moment of Truth
Airlines are a consolidated mess, and JetBlue is trying to centralize the industry further. As Biden enforcers block deals across the economy, will Transportation chief Pete Buttigieg finally step up?
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Today I’m writing about airline consolidation and the merger of JetBlue-Spirit. The Antitrust Division is likely to challenge the deal, but the Department of Transportation, led by Pete Buttigieg, has much stronger authority to block it outright. Will Buttigieg act?
A K-Pop Monopoly?
Is Apartments.com showing bad data to help drive up rental price?
The “Make Me Do It” Myth of the New Deal
In 2009, as President Obama denied popular demands for a restructuring of the banking system, a historical anecdote about the New Deal kept popping up. This story involved Philip Randolph of the Brotherhood of Sleeping Car Porters and a group of activists asking Franklin Delano Roosevelt for bold executive action. FDR is said to have responded, “You’ve convinced me. I agree with what you’ve said. Now go out and make me do it.”
Many took this to mean that political leaders lack agency, and it is the job of activists to ensure that politicians serve justice. If a government official refused to do so, it was the fault of the ‘grassroots’ for not advocating harder. This story offered a way for activists to understand how important they were, and also a mechanism to reorder expectations from government. But during the Biden era, this anecdote never pops up. And the reason is because officials are constantly doing things, like blocking mergers, pushing out money for semiconductor factories, cutting insulin prices, or voiding non-compete agreements.
We can also see the shift in political eras by looking at the struggles of one of Biden’s most high-profile cabinet officials - Pete Buttigieg, the Secretary of Transportation. Buttigieg is a classic Obama-era official. He’s well-spoken and highly intelligent, a rising star on cable news with sufficient political judgment to run a credible Presidential race in his 30s. Buttigieg was picked to fill a powerful cabinet slot, a resume stop before moving on up to the Senate or White House. (Buttigieg has since moved to Michigan so he can run for state office.)
Normally, no one outside of industry notices the Secretary of Transportation. George W. Bush picked a Democrat to run that department, and Elaine Chao was better known for being the wife of Mitch McConnell than her stewardship of the airlines. Yet, Buttigieg, though well-liked among Democratic voters for his appearances on Fox News, has also been publicly lacerated over his inability to effectively govern the industries under his jurisdiction. Progressives like Bernie Sanders and Ro Khanna have demanded more, but the criticism is coming from all parts of the political spectrum at this point.
There’s some bad faith involved in these attacks - I mean it’s politics. But for the most part, criticism of Buttigieg’s stewardship are reasonable. The airlines have been a nightmare, and both parties are now looking at who is responsible for the derailment of a chemical-laden train in Ohio due to lax safety standards.
In one sense, this criticism is surprising. Policy governance of transportation industries have not caused a national figure such political problems in my lifetime. But it also shows that expectations of the public have changed. No one accepts “make me do it” anymore, which is the template on which Buttigieg learned his politics. And once Congressional figures realized that the Department of Transportation has significant power over the rail, trucking, and airline industries, all of which are quite consolidated, and they could blame such a high-profile figure, well, they started to point fingers.
Buttigieg is extremely smart and able to learn. And he can fix his tenure by taking action, though that’s not what he’s trained to do. But soon, he’ll run headlong into figures who have taken action. There are of course Biden’s antitrust appointments - Lina Khan, Jonathan Kanter, as well as FTC Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya - who have been aggressive. The Department of Justice is likely to file a suit against the JetBlue-Spirit Airline merger. And as it turns out, Buttigieg has an unusual amount of authority to block this combination, more than the Antitrust Division. So there’s a bit of a moment of truth feel here.
But Buttigieg isn’t just being compared to Brandeisian figures who made their careers attacking corporate power. The anti-monopoly movement has extended much further, into the centrist world in which Buttigieg makes his home. The 2021 White House executive order on competition policy, followed by Biden’s corporate power-heavy State of the Union last month, have been the most significant statements on corporate power from a White House in multiple generations. And this anti-monopoly impulse isn’t some wild liberal movement, the main actors in the administration were National Economic Council Chair Brian Deese, a former Blackrock official, as well as White House officials Ron Klain and Bruce Reed, who are moderates to the core.
And now we’re starting to see action from those one wouldn’t normally expect to act, from people who share Buttigieg’s politics. Last week, for instance, the the Federal Communication Commission moved to block the acquisition of a $5.4 billion broadcasting conglomerate Tegna by hedge fund Standard General. If this deal goes through, the FCC is concerned that Tegna would have raised prices (something called retransmission consent fees), as well as cut journalism jobs. Senator Elizabeth Warren, as well as a number of Democrats, asked the FCC to block the deal.
Wall Street didn’t, however, expect action, because the FCC is run by a moderate Chair, Jessica Rosenworcel, who was nominated twice by Obama to the commission and then designated as Chair by Biden.
Rosenworcel, like Buttigieg, is exceptionally mild, and learned her politics under the same environment he did. And she’s also constrained by institutional realities. Unlike at the FTC, where Lina Khan can act with a majority of Democratic commissioners, or at the DOT, where Buttigieg can act under his sole discretion, Chair Rosenworcel is hamstrung for most actions. There are only four FCC commissioners, because the Senate, due to telecom lobbying pressure, has yet to confirm a fifth commissioner nominee - Gigi Sohn - to round out the majority. There are two Republicans on the commission, and two Democrats, so she can usually act only with consensus.
Nevertheless, through a sly bureaucratic maneuver, Rosenworcel sent this merger to an internal administrative court, which virtually blocks it because it means the deal won’t close by its deadline of May 22. Standard General and Tegna vowed to fight on, but when Rosenworcel did what she did, the stock dropped by 20%, and every day the deal doesn’t go through it gets costlier for the merging parties. It’s “antitrust via passive aggression,” as Axios put it, a brutal bureaucratic move by an insider. It also, as it turns out, makes a total mockery of the “Make me do it" anecdote.
Blocking the merger is politically dangerous for Rosenworcel, because the power behind the throne here is Wall Street mob boss and private equity titan Apollo, which is financing the deal. While Standard General is the official buyer, Apollo - which owns Cox Media Group - would likely have unofficial control. Tegna’s TV stations cover 39% of households, while Cox’s cover 13%. That’s a pretty sizable market share, and would let the combined firm engage in mass layoffs and raise prices for content. The easy thing to do, and what likely would have happened in other administrations, is to let it go through. Rosenworcel’s aggressive act is a clear signal that the Biden administration’s executive order on competition is having an impact, and that policymakers everywhere are learning and adapting to a new populist reality.
The other interesting implication here, aside from Buttigieg-like regulators making decidedly aggressive moves, is that the FCC has much stronger authority to block a media merger like this because it can challenge mergers based on a “public interest” standard vs the standard of “may substantially lessen competition” laid out in the Clayton Act. The Antitrust Division could have tried to intervene, in the hopes that it got a good judge. But it did not have to, because Rosenworcel saved the day.
The FCC’s move puts further pressure on Pete Buttigieg on the JetBlue-Spirit deal. Buttigieg has similar yet unused authority to block mergers in his realm that Rosenworcel has in hers, and his politics are similar to Rosenworcel’s. So naturally the question arises, if she can do it, why can’t he? Is he going to leave the JetBlue-Spirit merger to Antitrust Division, and let them take the gamble of getting a good or bad judge? Or will he put his foot down?
There are more similarities. Like the Tegna deal, JetBlue-Spirit Airline merger is happening in an already concentrated and highly regulated industry. The two airlines overlap on over 40 routes, with both concentrated in Florida and the Northeast. (Spirit is already canceling routes in anticipation of the merger.) It’s a consolidated industry - American, Delta, Southwest, and United control more than 80% of the market. And removing an ultra-low cost carrier like Spirit from the market will, according to one MIT study, raise prices for consumers, by about a fifth.
There will also likely be job losses, since these airlines will close hubs. South Florida will certainly lose Spirit’s headquarters, and the Transport Workers Union, which represents 6,800 JetBlue flight attendants, warns that more than 9,300 workers are at risk of losing their jobs. Buttigieg can stop price hikes and save jobs, if he acts, just as Rosenworcel did when she acted.
The other similarity to the Tegna deal is that Elizabeth Warren is asking Buttigieg to block it using his public interest standard, just as she asked the FCC to do the same with the broadcasting merger. “DOT has the statutory authority to block mergers that it determines are inconsistent with the public interest at the agency level without having to go to court – a significant advantage over DOJ – and you have an enormous opportunity to protect consumers nationwide by using this authority aggressively,” she wrote.
There’s a lot of disdain for Buttigieg among populists, but the truth is, he is pretty new to his job. And there’s no reason to think he can’t learn, and can’t take advantage of the opportunity set up here for him to generate some positive headlines. By taking action to block this merger, Buttigieg would have an opportunity to rewrite his political narrative, which is beginning to solidify into ‘rising star confronts the sordid reality of governing.’ He could seem in control of the Department of Transportation, instead of trying to constantly explain that a particular accident or problem wasn’t his fault. More bad stuff in transportation is going to come his way, but at least he’ll be seen taking real action to fix long-standing problems.
Regardless of what he does, he will be acting, or not acting, with the backdrop of an increasingly robust set of policymakers. It’s not just highly notable achievements, like cutting the cost of insulin. Just in the past week, the antitrust agencies, sometimes with help from the rest of the government, have filed a flurry of cases. For example, financial regulators have helped the Federal Trade Commission challenge a proposed $13 billion ICE-Black Knight merger. The Antitrust Division will try to stop the $20 billion acquisition of collaboration software firm Figma by graphic design specialist Adobe. And the Division is conducting a deep investigation into private equity software giant Thoma Bravo’s acquisition of ID management firm Forgerock, a merger I wrote up in November. (For more detail on these actions, read Block Block Block.)
The cascade of actions is constant. It’s not always victory, but it’s always a bias towards action. Enforcers have lost, and are going to lose, quite often. But in this environment, voters are more forgiving of public officials if they are acting, rather than blaming.
And all of that brings me back to the “Make me do it” anecdote. One thing we’ve learned, from Trump and now Biden, is government officials can and do act all the time to wield power. That’s why we have elections, to hire people to represent us. And as it turns out, the anecdote about FDR and activists was historically inaccurate, a falsified story that convinced a swath of politically attuned citizens to expect nothing from their government. I don’t know why it moved so widely. Maybe this anecdote was spread because it seemed to capture the moment, or maybe it was a justification for a widely beloved President doing little to constrain Wall Street. Regardless, Biden, whatever one might think of him personally, is engaged in a lot of policy activity to address corporate power.
The test for savvy political operators like Buttigieg is whether they can keep up.
Weird Monopoly: K-Pop
BIG reader S.K. sent in this note.
There's currently an attempt to establish a Kpop monopoly. The short version is that Hybe (the label which represents BTS) is trying to become the largest shareholder in SM Entertainment, the largest legacy Kpop label. Both Hybe and SM are 'Big 4' Kpop labels.
This is part of an internal power struggle in SM Entertainment. I haven't followed all the details, but many people say it's like watching a kdrama. SM Entertainment was about to form a partnership with Kakao, one of the biggest internet companies in South Korea. Part of the deal was that Kakao would become the largest shareholder in SM (though they'd still be a minority owner under the deal). Lee Sooman, the founder of SM Entertainment ('SM' is short for 'Soo Man'), who was also the biggest shareholder, saw this as a threat to his power, so he made a deal to sell all of his share to Hybe, and Hybe is trying to buy even more shares so they become a majority owner. One of the co-CEOs of SM is Lee Sooman's nephew, and he opposes Hybe's 'hostile takeover' along with the other top management at SM, so on top of everything else, we have a struggle between uncle and nephew. This article has more details.
To get the point of view of SM's current management, watch this video (which has English subtitles). I know people who are fans of artists under both Hybe and SM, and they both complain about how expensive albums and merchandise are, though Hybe has even higher prices than SM. I noticed in the video he calculates market share based on revenue, if it were based on units sold (albums, concert tickets, etc.) Hybe + SM's share of the kpop market would be lower.
Now, another angle is that Kakao is already a monopolist in some fields, and they're also in a position to monopolize kpop as well. They own a few kpop labels which represent some of the most successful kpop artists not at the Big 4, including IU, South Korea's most popular singer-songwriter. To put that in American terms, imagine that Google owned a few pop music labels, and one had an exclusive contract with Taylor Swift. Kakao has already been accused of using its media influence to push good publicity of kpop artists under its own labels and bad publicity of kpop artists under other companies. Kakao is also one of the biggest, if not THE biggest, Kpop distributor, most smaller labels distribute through Kakao. Even though Kakao isn't trying to outright buy SM, developing a strong business alliance with SM is also IMO cartel behavior.
On top of that, one of the other Big 4 Kpop labels, YG Entertainment, might be losing ground. They've already had some of their top Kpop artists leave in the past six months, and the contracts of their most profitable group, Blackpink, expire this year. Other companies with deep pockets are almost certainly trying to persuade Blackpink to join them, and Hybe might be one of those companies. If Blackpink leaves YG Entertainment, YG Entertainment might become the weakest of the Big 4 Kpop labels. And if Hybe picks up any Blackpink members...
I learned most of this from Kpop fans.
I hope this was of interest.
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P.S. A lot of readers sent me the remarkable story by ProPublica on how large corporate landlords use RealPage software to likely collude on rent prices. I got this excellent email from BIG reader GT on his observations showing how online intermediaries showing rental prices may be part of the scam.
ProPublica recently exposed how RealPage's "market pricing" software used by large landlords has contributed to rental housing inflation, homelessness and evictions. RealPage collects non-public lease data (including actual rents paid) from many large Wall St owned apartment complexes and turns it into pricing recommendations for future leases. Here's a take at NakedCapitalism. Several lawsuits have been filed against RealPage claiming their software facilitated improper landlord collusion.
Artificially inflated advertised lease prices that you can find at Apartments.com or Zillow complement the efforts of RealPage to inflate landlord profits. Unfortunately, it was not investigated by ProPublica. Here's how I believe it works:
I've lived in a downtown apartment in a regional metro area since 2015 and kept a close eye on pricing over time with Apartments.com. The formerly dead downtown area has developed several large apartment complexes over the past 10-15 years and now has nightlife and is a decent place to live. My 250 unit complex has kept high 90s occupancy rates since opening in 2014 but about 80% of residents turn over within 2 years. Many are medical/physician assistant students. It was one of the first in the downtown area, located next door to a medical school. About 10 newer complexes in the same price range are now nearby.
Three months before my lease is up, management sends a note with over a dozen reenlistment options from 3 to 15 months (or a high rent month-to-month option), each with a different price (typically, but not always, longer terms have lower monthly prices.) Management told me they use daily "market prices" when determining rents. The various rent options actually change daily for every available unit in the complex and nobody pays the same price, even for identical units. Yield management, much like airline tickets. I'd never given much thought to how they determined "market prices" until the ProPublica piece explained RealPage's YieldStar software.
The first few years (2015-18), I used the Apartments.com daily pricing available on-line to successfully negotiate slightly better leases than they offered at re-up time. No sense in paying more than what Apartments.com advertised for units identical to mine. After 2019, management hasn't been as willing to negotiate and the prices on Apartments.com increased by about 30% in 2021 (they've dropped by about 15% since late 2022.)
As advertised prices increased by 30%, I was concerned about whether I wanted to stay. My reenlistment offer came in - the 3-14 month leases all showed increases of 30%. But the 15 month offer was $600 cheaper - just a 3% increase. I thought it was a good deal, breathed a sigh of relief and accepted. Several other long-term residents had similar experiences when signing new leases.
But why the huge discount for 15 months?
According to Zillow, the lease lengths available at my complex are from 3 to 14 months. So their advertised prices were the same as the inflated prices I was offered - except for the heavily discounted 15 month lease. Not advertising the cheapest lease only makes sense if the landlord is colluding with nearby landlords and inflating advertised prices. Zillow and Apartments.com (CoStar) must be getting the advertised pricing data from somewhere, likely one source. I don't know who but if it's not already aligned with RealPage, they'll likely soon be merged.
Those years I patted myself on the back for negotiating better leases with the Apartments.com data? I was played. Landlord interests weaponize on-line pricing for their benefit. It's fake data.
I suspect that just about any source of pricing data you can find on-line is similarly manipulated in favor of the monopolist data collector and their clients.
Most non-public pricing data collection outfits are likely facilitating illegal collusion. Hopefully, FTC has these folks in their sights.
The thought that Buttigieg might actually do something smart or helpful is about like thinking cows might fly to the moon. Lota stuff in your article though. Keep up the good work.
The RealPage story could be an opportunity to start a business that collects and publishes trustworthy data from renters for use by renters.