Hi,

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

Today I’m going to write about the obstacle the Supreme Court - and in particular the conservative justices - have placed in front of a Google case. I also have a very cool write-up from a BIG subscriber on why Asian grocery stores in America are cheaper than normal supermarkets.

First, some house-keeping. Here’s my written testimony for New York state’s new more aggressive antitrust law that I wrote about last week. I’m at hour one, minute fifty two. If it passes, New York’s new antitrust statute could be a game-changer.

And now…

Google and Our Pro-Monopoly Courts

All indications are that the Department of Justice Antitrust Division, perhaps joined by Republican state attorneys general, will be filing an antitrust suit against Google, as soon as next week. The politics are lined up for it; last week, the Senate Antitrust Subcommittee held a hearing on Google’s dominance over the advertising market, with unanimous agreement that Google is too powerful.

Senator Mike Lee is the chair of the subcommittee and was also one of Google’s last remaining Senate defenders. But even he flipped, issuing a statement after the hearing basically accusing the corporation of being an illegal monopoly. Here’s what he said:

[Google] appears to be using its leading market positions in search and online video to engage in tying on the advertiser side of its business, essentially forcing the vast majority of demand onto its platform. In turn, publishers are also forced to use Google’s platform because there really isn’t any other option.

Lee’s comments are a major victory for anti-monopolists. While Obama didn’t do much to address monopoly power, towards the end of his administration the Democratic establishment started shifting towards a more skeptical posture towards corporate concentration. Elizabeth Warren launched the first mainstream attack on Google as a monopoly in 2016. She was pushed back by critics as seeking to upend antitrust law to incorporate social goals, for being a radical left-winger, for hipster antitrust, whatever. But it should be clear by now that Warren has won the debate. If Lee is on board, then nearly everyone in Congress is on board.

The problem that Bill Barr and the states will encounter in bringing an antitrust suit, however, is the judges that George W. Bush and Donald Trump have put on the court (not to mention the seat held by Ruth Bader Ginsburg that Trump will try to fill). This is because courts have claimed total authority over not only interpreting statute, but since the 1970s, actually writing antitrust law itself, largely consistent with the conservative legal movements goal of supporting corporate concentration. Legendary antitrust jurist Robert Bork’s theory of competition policy was also a theory of judging; in his view, Congressional intent and even statute didn’t really matter, what mattered was that corporatist judges could make the law conform to his moral preference of consolidating wealth and power. Bork was a culture warrior, and in his view, strong antitrust enforcement prior to the 1970s was an ideological attack on a moral America organized by an appropriately rigid social hierarchy. His view, in other words, was that it was important for conservatives to turn the judiciary into a super-legislature, and that so the world we’re living in is one in which Democratic judges and Republican judges dishonestly write law under the pretense of being neutral umpires.

Bork’s philosophy of having judges narrow antitrust has continued to shape the law up to the present day, heavily structuring the way enforcers approach tech platforms. In 2018, the Supreme Court, in a 5-4 decision known as Ohio v. American Express Co, wrote that monopolization claims against what are called ‘multi-sided platforms’ have a higher burden of proof than ordinary claims. The case involved American Express, which connects merchants who take American Express cards with customers who have those cards. Amex was screwing merchants by charging them high prices and refusing to let them ask shoppers to use Visa or Mastercard, whose charges were lower. A bunch of states sued American Express, claiming that it was violating the Sherman Act by charging high prices and preventing customers from using the services of competitors.

American Express offered a novel defense. Showing monopolization and harm wasn’t enough, Amex claimed, the government also had to show that across American Express’s entire payments platform there was a net loss. That is, American Express argued that it offered reward points to consumers, and those reward points offset any harm it might be doing to merchants. The Supreme Court, led by conservatives (Thomas, Gorsuch, Kennedy, Alito, Roberts), agreed with Amex, crafting special rules for platforms. The case extends far beyond Amex, and helps shield the business lines of Google, Facebook, and Amazon from monopolization claims.. In effect, conservative judges created, as scholar Lina Khan noted, “de facto antitrust immunity for the most powerful companies in the economy.”

Amex was a critical case, and among those who filed in support of gutting antitrust law was Wall Street, the pharmaceutical industry, lobbying group for large technology firms like Google, Amazon and Facebook, the big tech-funded antitrust law professoriat. And a district court has already dealt the DOJ Antitrust Division a loss when it challenged the merger of Sabre and Farelogix, largely on grounds that multi-sided platforms have special higher burdens of proof to show potential monopolization.

Now there are ways around this decision, depending on the Google case DOJ and the states choose to bring. Still, if the Trump Department of Justice does bring a Google case, they may have obstacles or a higher burden of proof because of Amex. As Bloomberg law noted last month:

Federal and state enforcers need to be prepared for Google to invoke the AmEx ruling in its defense, antitrust experts say. The company has argued that competition has helped lower the cost of online ads in recent years, and highlighted the money it makes for publishers. Successfully raising that legal precedent would put a higher burden on government lawyers to prove that Google’s behavior is anticompetitive.
“People are going to have to try to guess when a court is going to say, ‘Oh no, your market is actually two-sided,’ and they will have to have the backup market definition ready to go,” said Chris Sagers, a professor at the Cleveland State University law school. “If they don’t, case dismissed.”

There’s a lot of evidence piling up against Google. But the reality is that the courts have been increasingly hostile to bringing antitrust claims for decades now, spurred by conservative jurists.

It has been over twenty years since a major monopolization case, when the DOJ won its antitrust case against Microsoft. Still, the case ended not with a bang but with a whimper. After Microsoft was found guilty of violating the antitrust laws by tying its operating system to its browser (among other problems) in order to forestall competition, the district court judge ordered the company split in two. But an appeals court overturned the remedy, relaxing antitrust law, and the new Bush administration settled with Microsoft. It became evident that the courts had legalized monopolization in high-technology markets. Two years later, Oracle CEO Larry Ellison responded to the decision by noting that dominance in every line of business was now a court-blessed reality, and in databases, Oracle intended to “be that dominant player.” Or, as he put it, “We have to roll up our industry.”

In 2004, the Supreme Court further eroded monopolization cases with Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, a decision authored by Antonin Scalia but joined by every other member of the court. Verizon was a local phone monopoly controlling access to customers, and in the 1996 Telecom Act had been required to lease its lines to competitors at a wholesale rate so that they could compete with Verizon to sell telecom services. But Verizon had refused to do so. Customers sued, alleging Verizon had monopolized the market. The Supreme Court, in an aggressive decision, not only said that Verizon could monopolize the market by shutting out its competitors from its essential service, but that it should do so. Here’s what Scalia wrote:

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices–at least for a short period–is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.
Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.

A few years later, the court unanimously ruled in Pacific Bell Telephone Co. v. linkLine Communications, Inc., that AT&T could basically do the same thing, only by charging high prices for service it was required by law to provide to competitors offering internet access. Effectively, the courts have been saying for years now that monopolies are legal and that monopolists, especially in high tech markets, can and should exploit their market power to crush competitors.

The politics however are changing. The Trinko and Linkline cases were unanimous decisions, reflecting that both Democrats and Republicans had both embraced monopoly power. What’s interesting is that over the past few years, roughly concurrent with the new anti-monopoly movement of the mid-2010s, the courts have begun diverging ideologically on business issues. Democratic judges, though quite friendly to large corporations, have begun ruling for plaintiffs under arbitration clauses, overruled as usual by Republican judges. They have also been quietly getting better on antitrust claims; in 2013, the Democrats, in FTC v. Actavis, Inc, got Kennedy to go along with a 5-3 decision that pharmaceutical companies couldn’t pay bribes to have cheaper drugs taken off the market. Similarly, under Apple vs. Pepper, in which consumers sued for the right to sue Apple over antitrust claims in its app store, there was an ideological split. There were four Democrats on the pro-antitrust side, and four Republicans on the pro-monopoly side, with Kavanaugh, interestingly, going with the Democrats.

As the antitrust debate started heated up, the Democrats have been moving towards skepticism of large corporations, while Republicans are going the opposite way, crafting new rules that privilege platforms in Amex and nearly ruling for Apple on app stores. One more conservative justice, as is likely, will make it that much harder to bring claims of monopolization.

All of this brings us back to the Google case. Trump and some conservatives often talk about how much large technology firms organize our society in dangerous ways, deriding Silicon Valley leaders as socially progressive unaccountable elites. Senator Josh Hawley, a key leader in this faction, argued that that Silicon Valley are a “cosmopolitan class” building an “aristocracy” on top of the backs of ordinary American people. And yet, it is the conservative courts that the conservative legal movement supports who are actually building the monopoly power that he derides as a bastion of elitist leftist thinking.

During the Supreme Court fight over Brett Kavanaugh’s confirmation, for instance, Facebook’s head of public policy Joel Kaplan was hovering in the hearing room; Kaplan even threw a party for Kavanaugh after confirmation. Kavanaugh is, despite his decision in Apple vs Pepper, quite hostile to antitrust claims, and yet his confirmation was also considered a major victory for the social conservatives who see in Facebook a threat to their values. This inconsistent intellectual approach is likely to get worse with the looming Supreme Court vacancy. Perhaps these judges will be more tolerant of an antitrust case because conservatives are the ones bringing it, but that is a thin way to understand equal justice under law.

The most likely pick to fill Ruth Bader Ginsburg’s seat is Amy Coney Barrett, and while you’ll hear a lot about her views on abortion, her business record will determine whether antitrust suits move forward or not. (I haven’t done an exhaustive review of how she thinks about antitrust questions, but from what I have read she’s a pro-corporatist jurist. For instance, she ruled just last year to let AT&T ignore the Do Not Call list and robocall people at dinner.) And I am understating the problems that Trump has introduced into antitrust law, because Trump has packed the lower courts with judges that are deeply hostile to plaintiffs taking on corporations.

None of this is to let Democrats off the hook for how the Obama administration brought no meaningful monopolization cases and helped Google, Amazon, and Facebook consolidate power. Nor is it to forget about the horrific antitrust record of, say, Stephen Breyer, or the poor policy choices of Bill Clinton. But it is to note that Trump has basically continued Obama’s policy framework on monopolization, while also appointing judges hostile to taking on big tech. So remember, as Barr announces the Google antitrust case, that the Trump administration is also at the same time trying to put a justice on the court who might very well render that case moot.

Thanks for reading. Send me tips, stories I’ve missed, or comment by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller

P.S. This note from a reader is fun. I shop at H-Mart all the time, and the pricing difference is notable.

Hi Matt,

I really enjoyed reading your articles. Very thought provoking even though we are on the opposite side of the political spectrum. I do want to share stories about monopolies and how it is impacting me.

I run a family grocery import business in CA. We import mostly from Taiwan, Thailand and China. I know first hand all the issues relating to outsource to China because I saw those manufacturing facilities up close whenever I went to visit China.  We distribute to just about all the Asian grocery stores in the country as well as regular supermarket chains and some of the big concentrated buyers that you had described in one of your earlier articles.
The Asian grocery industry is the complete opposite of the monopolies that you have been describing.  In Asian grocery stores, you are looking at the best example of an infinite number of competitors in the supply/demand curves.  There are about 1,000+ stores (imprecise number) across the country. None of them are publicly traded, they are all privately owned, including the largest chains.
The largest chains are H-Mart (Korean) 79 locations, 99 Ranch (Chinese) 53 locations, Seafood City (Filipino) 27 locations, and Island Pacific (Filipino) 16 locations. Everyone else is under 10. All these grocery stores are serviced by about 100 importer distributors like us. Again, other than JFC which is owned by Kikkoman, all of them are privately owned.
For comparison’s sake, the US has about 25,000 supermarket locations and they are serviced by 4 national and 8 regional distributors. The largest domestic chains are Kroger (2700+ locations), Albertson's (2400 locations), and Ahold Delhaize (2200+ locations). Use your math and you can see the domestics chains are much more concentrated versus the Asian chains (top 3 is over 30% vs 10-15%).
There is no entry barrier for Asian grocery stores. Just about anyone can open a small market and just about anyone can buy a container or two from Asia and start distributing locally. It's the industry of choice for 1st generation immigrants who don't necessarily have fluency in English. In this kind of extreme competition, most compete by pricing. Some of the larger ones can get very profitable while it's a struggle for others. The way for most retailers to get profitable is by cutting costs in as many places as you can. Because of the intense competition and the ease that one can open a new market, there is no consolidation like that of domestic chains.
So what do you get in an industry that has an almost infinite number of competitors? You don't get a high degree of professionalism (the margin can't afford to pay top dollars for talents other than the ownership family), very stagnant business model (too expensive to try anything new), lack of reinvestment (Most stores would never remodel, even after 20+ years of operations). New concepts will only come with new stores, none of the existing stores would even think about doing something new or different.

For my own industry, due to the large number of competitors, we are facing the same issues as retailers, intense competition. If you look at the numbers, over 100+ distributors servicing the 1,000+ accounts while domestic chains of 25,000 stores serviced by 4 national and 8 regional distributors, you can see the Asian grocers have a lot of options comparatively speaking. You asked a while ago why prices on grocery stores are more expensive than say in Europe, this is one of the many reasons why. US domestic chains are controlled by an oligopoly of distributors for products that these chains don't buy directly from manufacturers. The only way that we can increase our profitability is to seek rent by signing exclusive distribution contracts. That also comes with its own risk of the contract not being renewed.

We sell to one of the concentrated buyers that you had mentioned previously. We also have worked with these national distributors. I have seen similar problems and issues with these concentrated buyers. They are basically unaccountable for anything. If they screwed up, it's on you, not them. If they are having a bad day and forgot to do something for your product, too bad. If a buyer is engaged in bad behavior towards you, you have no recourse because that buyer could boycott you. Because of the size of their market, we don't have any recourse. So we just bear it and try to manage to the best of our abilities.  These large concentrated buyers are immune to any kind of market pressure from a competitive point of view.  Typically when an organization gets so large, they lose their core competency. They are no longer focused on providing the best possible product. It's the stock prices for them that is the driving force not the desire to produce the best possible product or service.

I abhor monopoly because I have seen examples of firms with exclusive contracts who just collect rents and not do anything or these large concentrated buyers that are immune to market pressure. They no longer try to innovate. Eventually something will catch up with them. With monopoly, there is no accountability. Monopoly exists in this country in so many industries. But I also saw the instance of the opposite of monopoly, unconcentrated industries where the goods and services are really bad. Either extreme isn't good for us as a community. The happy medium is somewhere in the middle. However, the natural tendency for a lot of business is to get to monopoly so they can extract rent from the entire economy. We need better enforcement of the existing law.

Thanks for reading this Matt and keep up the good work. Anti-monopoly should not be a R vs D issue. It impacts us all.

BIG by Matt Stoller

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