Lina Khan’s FTC is hurting American consumers.
Lina Khan’s FTC is hurting American consumers.
S everal recent high-profile mergers and acquisitions have been greeted by critics with bombastic rhetoric and alarmist claims about the supposed death of competition in one market or another. Amazon’s purchase of Whole Foods and Anheuser-Busch InBev’s merger with SABMiller have both been opposed on these grounds. While it is true that major transactions such as these deserve scrutiny, it is important to separate fact from fear and to remain grounded in economic reality.
In a recent policy paper from the International Center for Law & Economics, my co-authors and I go back and reexamine several prominent mergers that took place in the past two decades. We find that most of the doomsday scenarios that critics predicted never materialized. We argue that this history of failed predictions points toward the value of regulators taking a measured, prudent, and technocratic approach to antitrust enforcement. Predicting the effects of any merger is always difficult, but the most dramatic claims have consistently fallen short of the mark.
Unfortunately, some of the most vocal merger critics are no longer at the fringes of the antitrust debate, but core members of the Biden administration. Back in 2017, for example, Lina Khan was a legal fellow at the Open Markets Institute (OMI). Despite making strange arguments suggesting that the purchase of Whole Foods would expand Amazon’s “fief” — which is to say that, in Khan’s worldview, Amazon is the equivalent of a feudal lord — today she is chair of the Federal Trade Commission (FTC), one of two federal agencies charged with challenging merger cases.
Meanwhile, Tim Wu — who served until recently as President Joe Biden’s so-called competition czar — warned in a now-deleted tweet that the Amazon–Whole Foods merger would create a “super-monopoly.” His implication was clear: Whole Foods, a grocery monopoly, should not be allowed to combine with Amazon, a retail monopoly. Barry Lynn, OMI’s executive director and Khan’s boss at the time, also got in on the action. He charged Amazon with “monopolizing commerce in the United States.”
As it turns out, Khan and company were wrong. Since the acquisition, many large retailers have grown faster in market valuation than Amazon. Meanwhile, Whole Foods’ market share has barely budged. While Khan predicted in 2017 that the deal “would allow Amazon to potentially thwart future innovations,” in reality the grocery industry has experienced a boom in innovation over the past five years. Indeed, other grocers had to match Amazon’s model of easy online shopping with quick delivery. Competition can do that.
Now, grocery delivery is commonplace. Take Walmart, for instance. It acquired Parcel (a startup that offered same-day delivery services) in 2017, introduced same-day delivery in 2018, and pushed grocery pickup in 2019. Fortunately, by the time of the COVID-19 pandemic, grocery stores had started to look a lot more like Amazon’s Whole Foods than they did before the merger.
For another example of the gap between rhetoric and reality, consider the beer industry. It has witnessed several major mergers over the past 25 years. In 2002, South African Brewing (SAB) acquired Miller Brewing to become SABMiller. In 2005, the Canadian brewing company Molson merged with Coors to become Molson Coors. In 2007, SABMiller and Molson Coors announced a “joint venture.” A recent report from the Biden Treasury Department that grew out of the president’s executive order on competition pointed the finger at “the absence of consistent merger enforcement” as the cause of at least some of this increased concentration.
But Miller and Coors are not the entirety of the U.S. beer market; the story is more complex. A recent study by economists Robert Kulick and Andrew Card used U.S. Census Bureau data to determine that the market concentration of the four largest breweries has actually fallen from 90.8 percent in 2002 to 68.6 percent in 2017. In other words, far from creating a monopoly, the big players are losing market share rapidly.
That doesn’t mean everything has been perfect for consumers. A series of rigorous, econometric papers used the Miller–Coors joint venture as a natural experiment to study the effects of beer mergers. One paper found a significant price increase (6–8 percent) after the merger for the most popular beer brands (Coors Lite, Miller Lite, and Bud Lite). That’s bad for consumers. On the other hand , another paper found overall beer prices remained flat at retailers, due to increased efficiencies as a result the merger. Moreover, a third paper found that the merger caused an 11 percent increase in the number of craft brewers, while the number of products per craft brewer remained the same.
In other words, these mergers come with tradeoffs. Instead of simply proclaiming that beer mergers “eliminate competition,” “impose significant price increases on consumers,” or “undermine the continued emergence of craft beer,” serious economic analysis requires us to think these tradeoffs through.
Reassessing the predictions that Khan and her intellectual allies made in the past is particularly timely given the current debate over the future of antitrust enforcement in the United States. Khan’s FTC and the U.S. Justice Department are currently in the process of revising their 2010 merger guidelines, which determine the criteria by which mergers will be reviewed. Every indication is that the guidelines will be changed to signal more aggressive enforcement.
Critics of the previous enforcement regime argue that this move is necessary to counter the negative effects of corporate consolidation on consumers and the economy. We argue, however, that a more cautious approach is warranted. It is important to recognize that antitrust agencies have access to sophisticated tools and economic analyses to assess the likely impact of mergers and acquisitions on consumers and competition. By disregarding this expertise in favor of populist panic, we risk undermining the very foundations of antitrust enforcement and potentially blocking mergers that could benefit consumers and the economy.
Would consumers have a better grocery experience and lower prices in a world where Amazon couldn’t bring its business model to the market? Would beer lovers have more options at lower prices if we had stopped the shuffling of the market through mergers and acquisitions? In an economy already crippled by inflation and at risk of a recession, it is more important than ever to let economic analysis guide the FTC. Unfortunately, with Khan at the helm, the Left’s animosity toward certain companies is more likely to direct the agency, American consumers be damned.