Three judges - two appointed by Bill Clinton and one by Barack Obama - just issued yet another decision making it easier for big business to raise prices.
Very interesting. We need a new word for what the three Ninth Circuit judges represent. It's something beyond mere corporate Democratic Party piety. It isn't entirely a shift to the Right nor is it a straightforward embrace of centralized power, like entrenched totalitarianism. It's a new mix that pervades across age-generations.
This isn’t the first time I’ve read about judges taking it upon themselves to determine the answer to a question that is beyond their level of expertise. They are meant to adjudicate based on the written law; not determine the merits of a case based on having read some economists’ reports (who paid these economists for this research ?). There’s always two sides to a coin and the judges, I would have thought, were duty bound to look at both. Reading this is so annoying. Thanks Matt for all you do.
Why should Muricans be surprised? Weren't we told that a spouse of a supreme court judge took a brief "revolving door" job/consulting-assignment from a big money NGO just before hearing a case related to that business interest? T.I.M. This is Murica. It's all good.
Semi-OT: Here's an unusual view into an unexpected monopoly. The podcast is mainly about art vs loneliness. The author owned an art gallery for a while, and discusses the takeover of the art world by a few big galleries like David Zwirner, leaving no room for independent galleries.
Hmmm, sounds like our political system in which 2 parties collude to keep others out ... and adding insult to injury, they are the ones making the laws that result in such exclusion ...
I'm a little skeptical about the source of the issue and your proposed solution. You're correct that corporations act the way they do because of the law, but generally speaking, these types of monopolistic practices are enabled through government legislation. I'll give you a couple of examples.
1) Starting in the 20s, chemical companies like DuPont started using tetraethyl lead as a gasoline additive to combat engine knocking. They knew the issues associated with it, but proceeded with it anyway—to no one's surprise. What enabled them to be successful in this endeavor was the US Surgeon General and his corresponding task force concluding in 1925 that there were no problems with leaded additives and therefore no reason to prohibit their sale.
There's been no formal documentation showing whether the federal government was paid off by DuPont, GM, or any of the others. I wouldn't be surprised if that happened, though, and the reason for it is simple: when you have one regulatory body that allows or denies the sale of something, that becomes a single point of failure. This happens today, quite frequently, with the FDA and EPA as well. See, for example: Bextra and gabapentin. You can also think of this as a government monopoly, because a singular entity—the state—determines what is permissible.
2) The fossil fuel industry has strict control of supply of oil and gas because of anti-fracking and anti-drilling legislation. You have all sorts of Green non-profit companies and other NGOs, like Sierra Club or 350.org, who advocate for all sorts of environmental policies or renewable energy. Those companies are funded by the fossil fuel industry (Tom Steyer is a good example) to act as pseudo-competitors in the energy sector. By passing legislation that limits fracking and drilling, companies like Exxon, BP, Shell, and Chevron can drive up their prices because demand for fossil fuels continues to rise without increasing supply at the same rate. When asked for more supply, they shrug their shoulders and say they can't because the government has tied their hands.
The thing is that big business loves regulation because it hurts small business competitors. If I run a company that generates 10m of revenue a year and a new regulation comes into place that drives my operational costs up by 1m a year, I've just lost 10% of my revenue. For most small companies, that would cause them to go out of business. Until, lo and behold, a larger company comes along and offers to buy them for an amount greater than their now-lower valuation (and it's lower because their profit has dropped considerably thanks to the legislation changes). The net result is decreased competition. Likewise, it's much harder to get a new company off the ground to compete because of all the restrictions. The only way they can do so is with a lot of venture capitalist investment, and if you're getting funded heavily by a VC, you're at their whim for how your company runs—you no longer call the shots despite being the "business owner." From there, it's not terribly difficult for an investor in a big corporation to also fund a VC to give to someone trying to start up a new company in another market, especially before the regulations come in because they can dictate the market and later determine what "regulations" should go into place
Most anti-trust legislature isn't necessary in the first place because it's difficult to obtain a monopoly over a market without government intervention.
I'm also a bit perplexed at you dunking on economists as if they're a monolithic entity with the same set of ideas. I think you and I both know that any organization can pay off any economist or group of economists to claim whatever the organization wants—that doesn't mean much on its own, nor does it speak to the concept of economics in any way. This sounds like more of a flaw of the judicial system relying on third-party "experts" who can be paid off.
Moreover, there are multiple schools of economics; though, quite frankly, only one of them is worth a damn: the Austrian school of economics. It's the only one that actually explains how anything and everything within the market economy works. This is a bit tangential, so I'll leave that here.
The final part I'll comment on is that a hypothesized conspiracy theory based off limited circumstantial evidence is justification for a discovery phase that requires a company hand over private documents. You need to be extremely careful when claiming the state should have easy authority to compel access to private property. The only reason a business has private property is because individual persons have private property, and infringing upon property rights of a business makes it much easier, by way of case law, to infringe upon property rights of individual persons. Your stance strikes me as missing the significance behind property rights, to which I would suggest spending some time reading Locke. The right to own private property is fundamentally an extension of the property each person has within themselves—this is individual sovereignty or "self-ownership." You make property rights easily infringed upon and you make it easier for the state to determine how you should apply your labor or live your life. It's actually quite severe.
I agree with you that big business is a problem, and Austrian economics argues the same thing. In general, though, it's facilitated by government intervention that stifles competition. And, annoyingly, most government-created problems require a strong, government-created solution—see, for example, anti-trust.
Discovering everyday people ill-equipped to do their jobs properly. Why would these judges be so trusting of an economic model (and not use common sense)?
Separately, I was wondering whether even if they could be brought to court, companies would decide to collude and raise prices anyway, because by the time the courts would intervene, the profits they would make would be worth the trouble.
The decision as described here makes no sense. I presume next step will be a request for the appeal to be considered by the full 9CA bench. Hope Matt updates us!
Of course, if this isn’t the final decision in the case and it reaches SCOTUS and SCOTUS decides on actually hearing an appeal, odds are they’ll just approve the decision here or maybe even find a worse basis.
All of these judges using economics to justify price-fixing appear to be acolytes of the Law and Economics (L& E) movement started at the U. of Chicago in the late 1960's when folks like Milton Friedman and other libertarians were there. Richard Posner, now a federal judge who has made some good (unrelated) decisions wrote the first textbook on L & E in 1968.
Today there are L & E programs at many universities, including George Mason University. They are funded by, among others, the Koch family. Also at George Mason is the Mercatus Center, the Koch-funded libertarian think tank. Hmmm.
I think it would be interesting to see how many of these judges had taken courses at the L & E programs. IIRC, the Federalist Society also sponsors them.
Matt, I enjoy your writing and fully agree that the FTC has been asleep at the wheel for 40+ years.
I also completely agree that the dismissals cited above are crazy and should never have happened. However, you're kind of getting to the Matt Levine point of "everything is a monopoly". I work for a competitor of Unilever's and so may be able to provide some helpful commentary in that example.
First off, your assertion that "the firm is hiking prices not because costs are going up" is just not correct. My company buys almost all of the same raw materials as UL and costs are very, very much going up. We are seeing all-time record prices for some of the key raw materials in our industry (these materials are commodities) and the run-up in logistics costs is hardly a secret - you've documented it quite well in your articles on shipping. Unilever and its competitors (P&G has also publicly announced pricing) did not just "wake up" in 2021 and realize they could take pricing - they are being forced to take it due to cost increases. They are fairly certain that competitors will follow because those competitors buy the same raw materials and pay for the same transportation. You are correct that many markets within the CPG industry are quite concentrated and there is probably some degree of implicit price collusion, but you are putting 100% of the weight there and none on the cost picture.
A couple of other points on this industry (and others like it). While some cases of oligopoly or monopoly are due to M&A, there are many cases where it's due to firms offering a superior product or just being better at marketing that product. For example, P&G (owner of Tide) did not come to dominate the detergent category because they bought up all of the detergent brands - they did it by producing a better product and marketing it effectively. What is the anti-trust solution to that? Second, while you are correct that many CPG markets are quite concentrated, the trend for the past 10 years has been in the direction of more competition and more fragmentation, not less (this is typical: https://talkbusiness.net/2021/02/the-supply-side-niche-brands-took-share-from-large-cpg-players-in-2020/). The rise of eCommerce and digital advertising has enabled a massive increase in the number of brands competing in these markets. Brands that have been built entirely off of a DTC model are starting to break into brick & mortar retailers as well - go take a look at the body wash shelf at Target and you will see it is full of startup and independent brands, a far cry from 10 years ago when P&G and UL owned 1/2 of the shelf. It is crucial that anti-trust prevent the major players from snapping up these small brands and re-consolidating the industry.
Very interesting. We need a new word for what the three Ninth Circuit judges represent. It's something beyond mere corporate Democratic Party piety. It isn't entirely a shift to the Right nor is it a straightforward embrace of centralized power, like entrenched totalitarianism. It's a new mix that pervades across age-generations.
It's pro-corporate pro-stakeholder pro-identity anti-worker anti-labor anti-socialist pro-authority pro-credentials pro-censorship pro-military anti-competition anti-libertarian ahistorical elitist hierarchy of merit progressive incrementalism.
We need a word for that!
Better question is, Why should judges, trained in jurisprudence, be even asked to adjudicate matters falling within the scope of economics???
I love your newsletter.
Anton, Ottawa, Canada
Using economic theories as justification should be an obvious fallacy. Everyone knows who pays economists.
The market makers pay the model makers.
This shit is just not sustainable. Something gotta give.
This isn’t the first time I’ve read about judges taking it upon themselves to determine the answer to a question that is beyond their level of expertise. They are meant to adjudicate based on the written law; not determine the merits of a case based on having read some economists’ reports (who paid these economists for this research ?). There’s always two sides to a coin and the judges, I would have thought, were duty bound to look at both. Reading this is so annoying. Thanks Matt for all you do.
Why should Muricans be surprised? Weren't we told that a spouse of a supreme court judge took a brief "revolving door" job/consulting-assignment from a big money NGO just before hearing a case related to that business interest? T.I.M. This is Murica. It's all good.
Semi-OT: Here's an unusual view into an unexpected monopoly. The podcast is mainly about art vs loneliness. The author owned an art gallery for a while, and discusses the takeover of the art world by a few big galleries like David Zwirner, leaving no room for independent galleries.
https://player.fm/series/beatrice-institute-podcast/loneliness-as-world-decay-with-ian-marcus-corbin
The 9th Circuit's decision should be called "Wink, wink, Nudge, Nudge" Capitalism. It's not insane. It's corrupt.
Hmmm, sounds like our political system in which 2 parties collude to keep others out ... and adding insult to injury, they are the ones making the laws that result in such exclusion ...
Christ, I hate VISA and Mastercard more than all of the others! I wish someone would fix their profit rate at 1%.
I'm a little skeptical about the source of the issue and your proposed solution. You're correct that corporations act the way they do because of the law, but generally speaking, these types of monopolistic practices are enabled through government legislation. I'll give you a couple of examples.
1) Starting in the 20s, chemical companies like DuPont started using tetraethyl lead as a gasoline additive to combat engine knocking. They knew the issues associated with it, but proceeded with it anyway—to no one's surprise. What enabled them to be successful in this endeavor was the US Surgeon General and his corresponding task force concluding in 1925 that there were no problems with leaded additives and therefore no reason to prohibit their sale.
There's been no formal documentation showing whether the federal government was paid off by DuPont, GM, or any of the others. I wouldn't be surprised if that happened, though, and the reason for it is simple: when you have one regulatory body that allows or denies the sale of something, that becomes a single point of failure. This happens today, quite frequently, with the FDA and EPA as well. See, for example: Bextra and gabapentin. You can also think of this as a government monopoly, because a singular entity—the state—determines what is permissible.
2) The fossil fuel industry has strict control of supply of oil and gas because of anti-fracking and anti-drilling legislation. You have all sorts of Green non-profit companies and other NGOs, like Sierra Club or 350.org, who advocate for all sorts of environmental policies or renewable energy. Those companies are funded by the fossil fuel industry (Tom Steyer is a good example) to act as pseudo-competitors in the energy sector. By passing legislation that limits fracking and drilling, companies like Exxon, BP, Shell, and Chevron can drive up their prices because demand for fossil fuels continues to rise without increasing supply at the same rate. When asked for more supply, they shrug their shoulders and say they can't because the government has tied their hands.
The thing is that big business loves regulation because it hurts small business competitors. If I run a company that generates 10m of revenue a year and a new regulation comes into place that drives my operational costs up by 1m a year, I've just lost 10% of my revenue. For most small companies, that would cause them to go out of business. Until, lo and behold, a larger company comes along and offers to buy them for an amount greater than their now-lower valuation (and it's lower because their profit has dropped considerably thanks to the legislation changes). The net result is decreased competition. Likewise, it's much harder to get a new company off the ground to compete because of all the restrictions. The only way they can do so is with a lot of venture capitalist investment, and if you're getting funded heavily by a VC, you're at their whim for how your company runs—you no longer call the shots despite being the "business owner." From there, it's not terribly difficult for an investor in a big corporation to also fund a VC to give to someone trying to start up a new company in another market, especially before the regulations come in because they can dictate the market and later determine what "regulations" should go into place
Most anti-trust legislature isn't necessary in the first place because it's difficult to obtain a monopoly over a market without government intervention.
I'm also a bit perplexed at you dunking on economists as if they're a monolithic entity with the same set of ideas. I think you and I both know that any organization can pay off any economist or group of economists to claim whatever the organization wants—that doesn't mean much on its own, nor does it speak to the concept of economics in any way. This sounds like more of a flaw of the judicial system relying on third-party "experts" who can be paid off.
Moreover, there are multiple schools of economics; though, quite frankly, only one of them is worth a damn: the Austrian school of economics. It's the only one that actually explains how anything and everything within the market economy works. This is a bit tangential, so I'll leave that here.
The final part I'll comment on is that a hypothesized conspiracy theory based off limited circumstantial evidence is justification for a discovery phase that requires a company hand over private documents. You need to be extremely careful when claiming the state should have easy authority to compel access to private property. The only reason a business has private property is because individual persons have private property, and infringing upon property rights of a business makes it much easier, by way of case law, to infringe upon property rights of individual persons. Your stance strikes me as missing the significance behind property rights, to which I would suggest spending some time reading Locke. The right to own private property is fundamentally an extension of the property each person has within themselves—this is individual sovereignty or "self-ownership." You make property rights easily infringed upon and you make it easier for the state to determine how you should apply your labor or live your life. It's actually quite severe.
I agree with you that big business is a problem, and Austrian economics argues the same thing. In general, though, it's facilitated by government intervention that stifles competition. And, annoyingly, most government-created problems require a strong, government-created solution—see, for example, anti-trust.
Discovering everyday people ill-equipped to do their jobs properly. Why would these judges be so trusting of an economic model (and not use common sense)?
Separately, I was wondering whether even if they could be brought to court, companies would decide to collude and raise prices anyway, because by the time the courts would intervene, the profits they would make would be worth the trouble.
The decision as described here makes no sense. I presume next step will be a request for the appeal to be considered by the full 9CA bench. Hope Matt updates us!
Of course, if this isn’t the final decision in the case and it reaches SCOTUS and SCOTUS decides on actually hearing an appeal, odds are they’ll just approve the decision here or maybe even find a worse basis.
All of these judges using economics to justify price-fixing appear to be acolytes of the Law and Economics (L& E) movement started at the U. of Chicago in the late 1960's when folks like Milton Friedman and other libertarians were there. Richard Posner, now a federal judge who has made some good (unrelated) decisions wrote the first textbook on L & E in 1968.
Today there are L & E programs at many universities, including George Mason University. They are funded by, among others, the Koch family. Also at George Mason is the Mercatus Center, the Koch-funded libertarian think tank. Hmmm.
I think it would be interesting to see how many of these judges had taken courses at the L & E programs. IIRC, the Federalist Society also sponsors them.
Matt, I enjoy your writing and fully agree that the FTC has been asleep at the wheel for 40+ years.
I also completely agree that the dismissals cited above are crazy and should never have happened. However, you're kind of getting to the Matt Levine point of "everything is a monopoly". I work for a competitor of Unilever's and so may be able to provide some helpful commentary in that example.
First off, your assertion that "the firm is hiking prices not because costs are going up" is just not correct. My company buys almost all of the same raw materials as UL and costs are very, very much going up. We are seeing all-time record prices for some of the key raw materials in our industry (these materials are commodities) and the run-up in logistics costs is hardly a secret - you've documented it quite well in your articles on shipping. Unilever and its competitors (P&G has also publicly announced pricing) did not just "wake up" in 2021 and realize they could take pricing - they are being forced to take it due to cost increases. They are fairly certain that competitors will follow because those competitors buy the same raw materials and pay for the same transportation. You are correct that many markets within the CPG industry are quite concentrated and there is probably some degree of implicit price collusion, but you are putting 100% of the weight there and none on the cost picture.
A couple of other points on this industry (and others like it). While some cases of oligopoly or monopoly are due to M&A, there are many cases where it's due to firms offering a superior product or just being better at marketing that product. For example, P&G (owner of Tide) did not come to dominate the detergent category because they bought up all of the detergent brands - they did it by producing a better product and marketing it effectively. What is the anti-trust solution to that? Second, while you are correct that many CPG markets are quite concentrated, the trend for the past 10 years has been in the direction of more competition and more fragmentation, not less (this is typical: https://talkbusiness.net/2021/02/the-supply-side-niche-brands-took-share-from-large-cpg-players-in-2020/). The rise of eCommerce and digital advertising has enabled a massive increase in the number of brands competing in these markets. Brands that have been built entirely off of a DTC model are starting to break into brick & mortar retailers as well - go take a look at the body wash shelf at Target and you will see it is full of startup and independent brands, a far cry from 10 years ago when P&G and UL owned 1/2 of the shelf. It is crucial that anti-trust prevent the major players from snapping up these small brands and re-consolidating the industry.