0:03

Bloomberg Audio Studios, Podcasts,

0:06

Radio News.

0:19

Hello and welcome to another episode of

0:21

the Odd Thoughts Podcast. I'm Tracy Allaway.

0:24

And I'm Joe Wisenthal.

0:26

Joe, we've done a little bit at this point

0:28

on antitrust. I feel like, kind

0:30

of interestingly, the first time

0:32

it ever really came up substantively

0:36

for us was I think

0:38

it was like way back in twenty

0:40

twenty or maybe twenty twenty one, where

0:43

we were talking about the potential for antitrust

0:45

enforcement to bring down inflation.

0:47

I don't know if you remember that totally.

0:49

No, I do remember it. I think we were talking about it

0:51

actually in the context of shipping at

0:53

the time. Yeah, of course, the major source of inflationary

0:56

pressure was the stress on supply chains. But

0:58

then that brought away, I would say.

1:01

And then it's since you know people paying

1:03

attention to it more, which is that you

1:05

know how to bottlenecks emerge? How do

1:07

inflationary bottlenecks merge? One theory

1:09

one source of these inflationary

1:12

bottlenecks is parts of the economy

1:15

where there's not very good competition.

1:17

Yeah.

1:17

Absolutely. And the other interesting thing

1:19

that's been happening recently is it

1:21

feels like definitions of anti

1:24

trust and anti competitive

1:26

practices have been expanding, right.

1:28

You hear this term hipster antitrust

1:31

all the time, this idea that maybe

1:33

anti competitive behavior doesn't just materialize

1:36

in things like prices, but

1:38

also in things like labor practices.

1:40

Totally. I think the rise

1:43

of the huge tech giants has contributed

1:45

to this because you do have

1:47

this situation in which it

1:50

feels like there are entities.

1:52

Look, if you have like a gigantic steel

1:54

monopoly or whatever, how is that going

1:56

to manifest itself as being bad

1:59

for the economy, Probably by really high

2:01

steel prices, right. I think in some

2:03

of these other business models, you

2:05

sense that there is concern about

2:08

corporate power, corporate concentration,

2:11

extremely powerful companies, but it

2:13

doesn't necessarily manifest as higher

2:16

prices. In fact, it maybe lower prices, and it

2:18

may be or maybe there's something not priced

2:20

at all, like right, none of us pay Facebook

2:22

directly or whatever it is some of these big social media giants,

2:25

And so I think that has probably contributed to

2:27

some extent for like, how

2:29

do we address market power through

2:31

outside the lens strictly of consumer

2:34

prices?

2:34

Absolutely, And the other thing just going

2:36

back to shipping. It feels like anti trust is

2:38

also potentially getting more attention

2:41

in the context of supply chain resiliency.

2:43

Right, So, yes, you can have high prices

2:45

because of a monopoly that dominates

2:48

a particular industry, but you could also

2:50

have a situation where if something

2:52

happens, if there's a choke point on

2:54

that business, as we've seen a number of

2:56

times in recent years, that it

2:58

creates a vulnerable for the entire

3:01

economy. So all of this got me

3:03

thinking, you know, clearly there is

3:06

an impact from antitrust

3:08

on the overall shape

3:11

and functioning of the economy,

3:13

and you see that kind of burst into the

3:15

policy debate every once in a while. But

3:17

I really wanted to dive into how

3:19

do you start to judge the effects of corporate

3:21

concentration on the overall

3:24

economy? And I have the perfect

3:26

guest for you, Joe Great, We're going to be speaking

3:28

to someone whose day job is basically

3:31

exactly this. We're going to be speaking

3:33

with Joanna Marinesque. She is the principal

3:36

economist at the Department of Justice's

3:38

Antitrust Division, also a professor

3:40

at the University of Pennsylvania.

3:42

Joanna, thank you so much for coming on all thoughts.

3:45

Thank you so much for having me.

3:46

What does a principal economist

3:48

at the DOJ actually do walk us

3:51

through your sort of day to.

3:52

Day absolutely so you know, in

3:55

my day job, what we do is we investigate

3:57

different companies for potential violation

4:00

of the anti trust laws and so

4:02

you know all these competition issues that you

4:04

just talked about. And so as

4:06

an economist, what I do there is

4:09

I oversee the work of my whole

4:11

team of PhD economists where

4:13

they go and do data analysis

4:16

in order to uncover the effects

4:19

of anti competitive practices on all

4:21

sorts of outcomes like prices

4:23

and wages and the quality of products

4:26

and so on and so forth. And we use

4:29

both quantitative analysis as well as

4:31

interviews and documents that

4:33

we are able to get from the companies

4:35

like emails, to better understand

4:37

how competition works in that particular

4:40

case and whether there is

4:42

in fact a sign of anti competitive

4:44

behavior.

4:45

So we talked about in the intro the

4:47

sort of antitrust thinking, maybe widening

4:49

the aperture of where you would look to

4:52

find evidence of uncompetitive

4:54

behavior beyond perhaps just

4:56

consumer prices. What type of data

4:59

are you looking when you talk about your going shifting

5:01

through all this data to look for evident what

5:03

are the types of data that you might look

5:05

at and what might be I guess, the signatures

5:08

of a company or an industry in which

5:10

anti competitive actions are a

5:12

problem.

5:14

So there are two main types of data

5:16

that I would point to. The first one is

5:18

on market shares, so you look at

5:20

the share of the companies

5:23

in their market. So this could be

5:25

a labor market or a product market. So

5:28

you know, if a company has a high

5:30

share and merges with another company that also

5:32

has a high share, then that's likely to raise

5:34

anti competitive concerns

5:37

in the sense that prices or wages

5:40

might be affected in a bad

5:42

direction. So that's one way

5:44

that we look at things again, calculating

5:46

market shares, and so that's for

5:49

one approach to looking at potential

5:51

for anti competitive harm. And we

5:54

can also talk about dominant firms,

5:56

so firms that have monopoly

5:58

power. That's also one of ways to

6:00

measure it is through market shares. And

6:02

then the second way is looking at

6:06

what we called head to head competition, So how

6:08

much do firms directly compete with each other?

6:10

And this would be found in

6:13

things like they are called win loss data.

6:15

So when you look at sales data,

6:18

you're looking at what company you lost

6:20

your business too. And that would show if

6:22

you often lose business to another

6:24

company that now you're trying to merge with. Well,

6:27

once you're merging, there's no longer going

6:29

to be that competition, the intense

6:31

competition between the two. And so

6:33

that's the second like broad category

6:36

of data. And there's similar data for workers.

6:38

If you constantly lose your workers to your

6:41

competitor and now you're merging, that

6:43

competition is going to be lost.

6:45

Oh that's really interesting.

6:46

So something like that win loss

6:48

data, how would you actually access

6:50

that? Where does that come from?

6:52

So that comes directly from the company's

6:54

data. So we because

6:56

you know we're the Department of Justice, if you're under

6:59

investigation with the companies

7:01

must send us their data, not

7:04

any data, but of course the data that's needed for the

7:06

investigation that concerns the specific

7:09

concern we have with potential

7:11

adverse effects on competition. So

7:13

companies send us the data, whether

7:15

it's again on the product for labor

7:18

markets, it would be data from things

7:21

like an applicant tracking system where they

7:23

see where people are coming from. So

7:25

that can also allow us to know where they're

7:27

hiring employees from and therefore trace

7:30

back the competition for labor.

7:33

So that sort of data you would get

7:35

that once an investigation had

7:37

already been started. Talk to us about

7:40

identifying potential investigations

7:43

and what sort of information

7:45

and data you would be looking at there,

7:47

or maybe you're looking at something like the

7:49

overall impact on the labor

7:52

market or prices, which we've already discussed.

7:55

Right, So for mergers, that's

7:57

sort of the bread and butter. There is

8:00

requirement for companies to file

8:02

so called HSR forms for any

8:05

transaction that's above some threshold, and

8:07

so in those forms they give

8:09

us some basic information about

8:11

why they're seeking to merge, you know, what

8:14

markets this might affect, and so on

8:16

and so forth. And actually we now have new

8:19

proposed additional information

8:21

on labor so that it's easier to look

8:23

at potential labor market effects.

8:25

So based on that, there's an initial screening

8:28

to see if we think that there might be

8:30

potentially anti competitive effects from

8:32

the merger. Then you know, there's an

8:34

initial investigation phase and basically

8:37

it goes from step to step until

8:39

we are satisfied that it's likely not going

8:41

to substantially lessen competition or

8:44

it could end up in a lawsuit to

8:46

try to block the merger if after having

8:48

done a lot of analysis and data and interviews,

8:51

we conclude that there's a substantial

8:54

risk that the transaction, the merger, would

8:57

lessen competition.

8:58

Not necessarily a specific merger

9:00

or an example, but just what would be a

9:03

style type of something. You

9:05

know, imagine company widget company

9:07

A wants to merge with widget company

9:10

B. They fill out this hs

9:13

R form for you, what

9:15

might be an example of something

9:17

that shows up that crosses

9:19

some threshold and in fact, is there a threshold

9:22

like is there a level of X or Y

9:24

in which like the red flag goes off, or

9:26

is there some level of subjectivity walk

9:28

us through like looking at that data

9:31

when the data flashes some alarm to take

9:34

this is not a good deal.

9:36

So the main there are many, of

9:38

course considerations that'd be hard to go

9:40

through here, but one of the main things

9:42

is the market shares. Okay, so if

9:44

we have some evidence that

9:47

these companies are competing in some

9:49

market for some widgets, some specific

9:51

widgets, so that's a specific product market,

9:54

let's say, and if both of those companies

9:56

have a high enough market share, that

9:59

raises alarm and in the merger guidelines. So we have

10:01

guidelines where we tell everybody this is public.

10:03

You can go see them. They are brand new. We just

10:05

put them out twenty twenty three Merger Guidelines.

10:08

It tells you exactly what that threshold is.

10:10

So what must your share be for

10:13

us to conclude that there

10:15

is a risk that competition might

10:18

be hurt in this merger. And again, the

10:20

general principle is that the two

10:22

companies must have a

10:24

high enough share in the market. So basically the

10:26

market we call it concentrated, so there's

10:29

few companies, each one has a large

10:31

share. And further, we require that

10:33

after the merger, the share

10:36

of the two companies combined increases

10:38

enough that it threatens competition. So

10:41

that's really a key screening

10:43

tool that we use, and

10:46

that's going to play an important role, you

10:48

know, as we go on with the investigation,

10:51

and why are shared is important. They

10:53

are important as an indicator of

10:56

how anti competitive effects could

10:58

happen. And this could be either

11:00

through a reduction in what we call

11:02

again competition direct competition for

11:05

customers or for workers,

11:07

or it could also be through potentially

11:10

an increased risk of collision that

11:13

whether explicit or implicit.

11:15

The few actors they are in the market, and

11:17

the easier it is for them to agree,

11:21

let's say to you know, increased

11:23

prices a little bit or let's say keep

11:25

wages down a little bit more, something

11:27

like that.

11:43

What happens in a non competitive

11:45

economy? Walk us through the sort of side

11:47

effects of having high corporate

11:50

concentration.

11:51

Yeah, so there are many adverse

11:54

effects, but broadly, some of these effects

11:56

are higher prices,

11:59

lower wages is less innovation,

12:02

so you know, just broadly, and lower

12:04

product quality, lower wage quality. So,

12:07

for example, for the labor market, if

12:09

we just take that as an example, because

12:11

of a lack of competition, so if you're

12:13

an employee and you don't have anywhere

12:15

else to go, that would be a good firm that you would

12:18

like. Similarly, just as well as your current

12:20

employer. That means that the employer

12:22

can pay you less because where are you going to go?

12:24

And so you know, I have a paper,

12:26

for example, and others have written related

12:29

academic papers, and you can show

12:31

that if we got rid

12:33

of this lack of competition, wages may

12:36

increase by as much as twenty percent

12:38

on average. You know, in the extreme case that

12:40

we could, you know, without all issues

12:42

with competition in the labor market. Now, if

12:44

you look at the product market, so

12:47

you know there's a lack of competition in various

12:49

markets for various widgets. Not

12:51

only that will increase prices,

12:54

reduce quality, and reduce consumer

12:56

choice, reduce innovation, but interestingly,

12:59

that will also have an adverse effect

13:01

on workers, which is an indirect

13:03

effect because when you have a monopoly, a

13:06

monopoly makes less stuff. They

13:08

produce less widgets,

13:10

fewer widgets, and in order to

13:12

produce fuel widgets, well, that also means

13:15

fuel widgets means you need fewer workers

13:17

to produce the wigets. So there's a

13:19

less demand for labor, less demand

13:22

for workers. So therefore that reduces employment

13:24

opportunities. And there's really cool new

13:26

academic work that's still work in progress

13:29

by Tanya Babina and co authors suggesting

13:31

that when the anti trust authorities

13:34

go in and enforce the anti trust law and

13:36

stimulate competition the product

13:38

market, you see an increase in employment

13:41

as business flourishes, and

13:44

they also need more workers to produce

13:46

whatever it is that they're producing.

13:48

One of the arguments that you know, one

13:51

thing that can theoretically happen. I don't

13:53

know if it happens in practice. But one thing

13:55

that can theoretically happen is

13:57

that two companies can combine and

14:00

become more efficient, and that means

14:02

that they have economies of scale, and maybe they can

14:04

lower prices. Maybe

14:06

that scale brings consumer

14:08

benefits with the lower prices, et cetera. From

14:11

an economist perspective, I'm

14:13

sure there are many instances where companies

14:15

say that that's what will happen, and

14:17

it seems at least possible. Is

14:20

it possible in your view that concentration

14:22

can lead to better consumer outcomes,

14:24

either a from a price

14:26

perspective or from a here's a very powerful

14:29

company that then becomes a wage ceter or

14:31

you just sort of would you be per se skeptical

14:34

of those claims.

14:35

So, you know, in general, as

14:37

with every claim where you know the

14:39

companies have an interest in making that claim,

14:42

we need to examine it, you

14:44

know, with fairness and with evidence. And

14:46

you know, if you look at the merger Guidelands, there's a whole

14:49

section on efficiencies, recognizing

14:51

that that's a possibility, but we also

14:53

ask that those efficiencies, if claimed,

14:56

be well documented, you

14:58

know, clearly articulated, verified by outside

15:01

experts, so that we can start to

15:03

potentially consider them, and we find

15:05

that oftentimes that's just not the case.

15:08

And so you know, again it's all

15:10

a fact based investigation and you have to

15:12

look at it. But that's certainly something

15:14

that we consider in the holistic assessment

15:17

of what's going to happen. Since it's

15:19

a predictive exercise, we have to assess

15:21

the risk. We take that into account

15:23

as one element.

15:25

Just to press you on this part

15:27

further, as an economist

15:29

coming to the table and there are other people, there are

15:32

lawyers or others at the table, what

15:34

are some of the tools in your arsenal

15:36

that you might use, or tools in your toolbox

15:39

per se, that you might use to

15:41

make such a prediction to evaluate

15:43

claims of economies of scale

15:45

and such things.

15:47

So what we essentially,

15:49

it's important to note that it's

15:51

not up to us the Department of Justice,

15:54

to make that point. It's rather that

15:56

the companies must be able

15:58

to prove with some evidence

16:01

that these efficiencies are likely to

16:03

result and be not only that there

16:05

are efficiency at all, which might

16:07

well be the case, but that they are sufficiently

16:10

substantial that they will negate

16:12

the anti competitive effects that we fear,

16:15

and so and of course, the specifics

16:17

against specific But what's really

16:19

important is not just to show that there

16:21

are some efficiencies, but

16:24

that they are again substantive

16:26

enough that the initial concern

16:29

that we had for all the adverse anti competitive

16:31

effects is likely not to materialize

16:34

because you know, those efficiencies

16:36

make the market so much more competitive. But

16:39

again the burden of proof in terms of who

16:41

must show that that's the economists

16:43

of the other side.

16:45

So one of the more interesting cases

16:48

that the DOJ took on over

16:50

the past because it was a few

16:53

years since it started, but the

16:56

Penguins acquisition of Simon

16:58

and Schuster, and part of this

17:00

is media naval gazing because

17:02

it involves the publishing industry, and

17:05

if you read some of the complaints and the other

17:07

documents around this, there is just oodles

17:09

and oodles of information on

17:12

like the actual numbers behind publishing

17:15

and how they come up with things like author

17:17

advances, how much they spend on marketing.

17:20

Stuff like that.

17:21

But walk us through the economic lessons

17:24

of a case like that, because

17:26

there seem to have been some trade

17:29

offs in that particular action.

17:31

So you know, I was really excited to see that

17:33

case. This was ongoing when I

17:35

arrived in my job at the division and

17:38

just to table sat a little bit. That

17:40

case was a case where Penguin

17:43

Random House was seeking to merge

17:45

with another big publisher, Simon and Schuster,

17:47

and we always first look at competition

17:50

in this industry, and in this case were interesting

17:52

competition for authors. So

17:55

you know this big publisher publishing

17:57

houses, they are trying to buy the rights

17:59

to author's books, and

18:01

so for big name authors,

18:04

they're on that many publishing houses.

18:06

In fact, there are only five so called big

18:09

five publishing companies that

18:11

vuy typically for books

18:13

by famous authors. And so we

18:16

focus specifically on what we

18:18

called anticipated top selling books,

18:20

which were books that would get an advance

18:22

of two hundred and fifty thousand dollars or

18:24

more. So we're talking here about you

18:26

know, likely big selling books.

18:29

And so in that market again

18:31

for those big big books, Penguin

18:33

Random House had the market share

18:35

there. We got market share, remember we talked about that

18:38

before, of thirty seven percent and

18:40

Simon and Schuster twelve percent, and

18:42

so you can see that together after

18:45

the merger, if it had happened, they would essentially

18:47

have half of that

18:49

market. And so that's like a really

18:51

significant change in

18:54

market shares. That would give these

18:56

publishing houses significant market power. And

18:58

what's the market power here, it's

19:00

the market power over

19:03

authors. When authors are shopping

19:05

around the manuscript to find a publisher

19:07

that they like that gives them good conditions.

19:10

Again, that's what they do. They shop around and they make

19:12

competition play who's giving me the best

19:14

terms? And once these

19:17

publishing houses would have merged, that

19:19

would remove an option for

19:22

the authors to get a better

19:24

deal for their books. And so therefore we

19:26

predicted that they would get

19:28

lower advances, and

19:31

that would therefore damage competition in

19:33

that market for the author's work. And this

19:35

is the judge agreed with us.

19:37

And so this is the first merger that was

19:40

blocked primarily on a theory

19:42

of labor market

19:44

power, where those publishing houses

19:47

would exercise power

19:50

over the labor of the authors

19:52

in this specific case, is.

19:54

There a you know you mentioned okay,

19:56

a company with thirty seven percent market

19:58

share want to merge with twelve percent market

20:01

share almost fifty percent? Is

20:03

there a number in which this is

20:05

too much? Does it vary by industry? Like,

20:07

where is this threshold exist such

20:10

that you could say, okay, this is an

20:12

okay level of market power or this is

20:14

too much.

20:15

Right, So that's in the merger

20:18

guidelines. We have a famous

20:20

you know, this is nerdy nerdy, but we have an

20:22

index try The HHI is

20:24

actually the Herd fineral Hershman index

20:26

that essentially boils down to market

20:29

shares. So if the market

20:31

shares in the market are generally high

20:33

enough, you're going to have a market that's already

20:35

we call it highly concentrated. And then

20:38

from there, if the merger is going to increase

20:40

it sufficiently in this concentration, making

20:43

the market even more concentrated

20:45

with fewer players, then

20:47

we think that it, you know, presumptively,

20:49

is going to cause an anti competitive effect.

20:52

And this, you know, this is this is

20:54

something that you can calculate, and the thresholds

20:57

are there in the merger guidelines.

20:58

Wait, so, speaking of calculations

21:01

and nerding out, when it comes

21:03

time to try to predict

21:05

the effect of this type of

21:07

consolidation on advances

21:09

for authors and their proposed books,

21:12

presumably you go about actually modeling

21:15

that in one way or another. How

21:17

do you do something like that for publishing,

21:19

which is kind of a notoriously opaque

21:22

industry in many ways.

21:24

That's right, So, you know, as I was

21:26

saying, it's always very fact specific,

21:29

and actually one of the coolest things that

21:31

I've learned by being at the division is

21:33

just the very many different details

21:35

of each industry that you know, as an academic,

21:37

you don't access this level

21:40

of detail, you know, or manage as

21:42

a journalist. If you could get all

21:44

the you know, various emails and

21:46

all these documents about what's really going on,

21:49

it's really juicy. So but

21:51

essentially here in this case, there's

21:54

a process of bargaining and shopping around

21:57

the manuscripts, and there's various ways

21:59

how this could happen, but typically it's

22:01

some sort of auction like format,

22:04

and so therefore our expert in

22:07

this case we work with an

22:09

outside economic expert who does

22:11

some of the analysis, and so he modeled

22:14

an auction style situation

22:16

where those firms, now instead

22:18

of each bidding independently, would

22:21

be together and calculated.

22:23

You know, the fact that it would

22:25

likely result in a significant decrease

22:28

in what the authors were going to be able to get

22:31

for their books.

22:33

You know, one thing in staying with the books

22:35

example, but maybe it's not the best example.

22:38

Another element of these fights

22:40

is fights over the definition of

22:42

what constitutes a market, and maybe

22:44

in books, it's kind of clear. We're

22:47

talking about books and there's five big publishers,

22:49

and so, okay, there's an advance

22:51

and everything. But one

22:54

could theoretically make the argument that the

22:56

market is more than just five book

22:58

publishers. And we live in an age of

23:00

social media and writers maybe

23:03

not doing a book, maybe doing a deal with

23:05

Netflix and turning it into

23:07

a documentary or other

23:09

vehicles that are not precisely

23:11

booked, but that may be a vehicle

23:14

for an author or researcher or

23:16

writer to get there out. Where does

23:18

the fight over what constitutes

23:21

the market itself occur or when does

23:23

that occur?

23:24

Well, you're really pointing the you know,

23:26

putting your finger here. You're putting your finger

23:28

on a fundamental question in those

23:30

anti trust cases, which is what's the

23:32

market. And importantly it's it's

23:35

not like there is the market, it's we

23:37

have to show a relevant market based

23:39

on how competition works. And so here

23:43

we define the market as this anticipated

23:46

stop selling books two hundred and fifty k

23:49

or more. But again you could say, well, they

23:51

could self published on published on Amazon,

23:53

right, and so that's where the

23:56

critical question becomes, Yes, but is

23:58

this other way of publishing a

24:00

reasonable substitute from the point

24:02

of view of those authors. That's really

24:05

a critical question that we go

24:07

about asking and for that we use

24:09

a tool, again very nerd. It's

24:11

called the hypothetical monopsonist test.

24:14

And so what this asks is whether a

24:16

hypothetical publishing

24:18

house that would become a monopsist,

24:20

meaning that they would be the only publishing house, not

24:23

five Big five, the only one,

24:25

would they be able to impose

24:28

a small but significant reduction

24:30

in the advances that are paid to

24:33

these authors. And if we find that

24:35

that would likely happen, that means

24:38

that the market is well defined. And basically

24:40

what that boils down to is authors

24:42

just don't have other viable

24:44

options, other equivalent options

24:47

outside of this market.

24:50

So you mentioned looking at various

24:52

industries, and I can only imagine

24:55

how interesting that must be with the amount

24:57

of data, first person data

24:59

that you that you get to see.

25:02

But one thing I was wondering is, you

25:04

know, you jump from sort of industry to industry.

25:06

So I think in recent times you've looked

25:08

at publishing, which we just discussed,

25:10

You've looked at nursing,

25:13

You've looked at things like poultry processing,

25:16

and also video games, can

25:18

you maybe single out one

25:20

of those that was most interesting to you

25:23

or one where you've learned something

25:25

new about how that particular industry

25:27

worked.

25:28

For sure, I think one of the coolest

25:31

cases I've gotten to work on. And

25:33

my kids got super excited about this because

25:35

they played a lot of video games. Concerned

25:38

video game tournament, the Overwatch

25:40

League, So this is organized by Activision

25:43

Blizzard, so that was like

25:45

a really cool case. And

25:47

what happened there is that it's really

25:50

interesting. So they have professional video

25:52

game players who get paid to

25:55

play video games. I'm sure that's the dream

25:57

for some people. And

26:00

and so what was happening there is that they had

26:02

a soft cap on workers' salaries.

26:04

So it was the case that each team

26:07

could not pay more than a

26:09

certain amount or else the additional

26:12

pay above that amount would get taxed

26:14

away. And so that meant that

26:16

the teams had a strong incentive to keep

26:18

the tool pay to the whole team,

26:21

you know, not go above the threshold. And

26:23

so what we said therefore is that this

26:25

is reducing competition for workers.

26:28

Here. The workers are video game players,

26:30

professionals, they won't be able to

26:32

get paid as much as they would get

26:34

paid without this restriction right, because

26:36

again the teams are strongly

26:39

disincentivized from increasing the wages

26:42

above this cap. And what's really

26:44

interesting is that there are similar

26:46

rules in other leagues like the

26:48

NBA and the NFL, but those rules

26:51

are collectively bargained and

26:53

whereas in video games there's no

26:55

unionization, and so these

26:57

rules were imposed without the workers,

27:00

in this case, the professional video game players

27:02

being able to have a say in

27:05

the rules. And so to me, that case

27:07

is really interesting not only for the video

27:09

game context, but also for the

27:11

interesting consideration of what happens

27:14

with collective bargaining or here the absence

27:16

thereof and therefore our prediction

27:18

that those rules you know, are imposed

27:21

on workers without their consent and are

27:23

going to significantly diminish their

27:25

pay.

27:26

Major League Baseball actually has an

27:28

official legal exemption the anti

27:30

trust law.

27:31

Yes, and that's really important because historically

27:35

one of the ways that the anti trust laws could

27:37

be used is to bust the unions because the

27:39

you know, the workers agree with each

27:41

other. Normally they should compete, but they agree.

27:44

And so it was decided from a policy

27:46

perspective that there would be an exemption for

27:49

union bargain bargaining that

27:51

you know, the the unions cannot be sued

27:54

by the Anti Trust Division for doing collective

27:57

bargaining, and so that's why it's different.

28:00

If there is a union is one thing. If there

28:02

is no union, it's a different thing. And so

28:04

in this case of the Overwatch

28:06

League, you know, the company agreed

28:08

not to do this again, you know, to limit

28:10

the workers' pay because again there

28:13

was no agreement with the worker through

28:15

bargaining, but instead it was just imposed

28:17

on workers against their will and would

28:20

likely reduce wages that the

28:22

workers are being paid.

28:23

This might be a very theoretical question, but we've

28:25

obviously been talking about the impact

28:28

of concentration on prices

28:31

and labor. Are there other effects

28:33

where you could see a sort of

28:36

anti trust argument playing

28:38

out, like other consequences on the

28:40

economy that might be worth looking at

28:43

for sure.

28:44

I think, you know, another aspect

28:46

that we haven't touched upon as much but

28:48

is innovation. And you know, innovation

28:51

is really important and one of

28:53

the you know, in order to create new jobs

28:55

and new businesses. So you know, we really

28:58

need innovation to grow, and

29:00

that innovation can be really thwarted

29:03

by anti competitive behavior

29:06

by you know, big, big actors

29:08

who monopolize markets. And

29:10

so you know, for example, we have

29:13

filed a lawsuit against Apple

29:16

as an example, and you know, one

29:18

of the arguments there is that Apple

29:21

is preventing its users

29:23

from switching to alternative

29:25

smartphones and one of

29:27

the ill effects of that is

29:30

a reduction in innovation. So essentially, the

29:32

big picture vision

29:34

here I just want to make clear

29:36

is that the anti competitive

29:38

behavior decreases innovation.

29:41

We're not saying that the company isn't innovating

29:43

at all. It's more like if there was more competition,

29:46

they'd be innovating more. So what does this mean

29:48

intuitively, is if you're able to

29:50

hold your audience captive as a company,

29:52

you know, you're it's very hard for the customer

29:54

to move away from your product. You just

29:56

don't have the same incentive to make

29:59

your product re good for the customer

30:01

in order to keep them. Whereas if there's a lot of competition,

30:04

well there's always a risk of losing the customer,

30:07

And now you're really incentivized to work

30:09

hard to innovate so that the customer

30:11

wants to stay with you rather than switching to

30:13

somebody else.

30:30

Since you mentioned tech and Apple

30:32

and innovation, there's a line

30:35

of thinking in economics, which is that

30:37

maybe the way we do official

30:40

economic statistics at the moment isn't

30:43

necessarily the best at capturing

30:45

the new economy, for lack of a better word,

30:48

like maybe productivity.

30:50

It's harder to measure productivity

30:52

improvements in something like a video

30:54

game or a phone, or I don't know, a

30:56

refrigerator that now comes with a

30:58

bluetooth speaker or whatever. I'm

31:01

curious if the same dynamic kind

31:03

of exists in anti trust

31:05

laws and enforcement. Does it feel

31:08

to you like the current tools

31:10

at your disposal are adequate

31:13

to capture maybe some of the new

31:15

anti trust challenges being thrown

31:17

up by a more modern economy.

31:20

Right, So, I think, you know, that's precisely

31:22

why we created the or you know,

31:24

we worked together with the FTC to

31:27

put out the twenty twenty three

31:29

merger guidelines. You know, we have taken

31:32

to heart all of those new technological

31:35

developments and you know, new ways

31:37

of looking at old problems,

31:39

and so, for example, you know, I mentioned

31:42

innovation as being one important consideration,

31:45

and in the merger guidelines, for example,

31:47

we pay special attention to let's

31:50

say, acquisition of nascent competitors

31:52

where a dominant player might be

31:54

buying a smaller company that is

31:56

very promising and might come to eat their lunch,

31:59

and so it really pay attention to that. And

32:01

also with respect to labor,

32:03

it's not all about wages, but we're also

32:05

looking at things like working conditions.

32:07

You know, how flexible the work is, maybe

32:10

special hybrid arrangements,

32:12

right, talking about technology that workers

32:14

might really enjoy. If there's less competition

32:17

for workers, there's less incentive for firms

32:19

to come up with creative ideas of organizing

32:22

work in ways that you know

32:24

will make people happy and productive

32:27

at work. So I think, you know, the new merger

32:29

guidelines have really learned

32:31

from recent developments in technology

32:33

and you know, in the economics literature to

32:35

look at a broader area

32:38

of potential effects

32:40

from anti competitive behavior that isn't just

32:43

limited to prices, which is usually the bread

32:45

and but of course we look at prices, but

32:47

there's all these other aspects like you

32:49

know, as I said, wages, but also innovation

32:52

and the quality of jobs.

32:54

When it comes to innovation, and

32:56

you brought up the Apple case, so on the one

32:58

hand, you could say it's anti competitive from

33:00

an innovation standpoint because

33:03

the frictions that they make make it hard for

33:05

a user or a consumer to move

33:08

from one type of smartphone to another. On

33:10

the other hand, one could argue

33:12

that actually it's good for innovation because

33:15

if you pool a ton of users

33:17

onto a single platform, then someone

33:19

can build a product and have this huge,

33:22

a wide swath of people

33:24

that they can target, and that opens up

33:27

anything. You mentioned big companies

33:29

buying up small companies. Maybe

33:31

that is anti competitive in one sense. But on the

33:33

other hand, if small companies view

33:35

an exit to a large company as

33:37

a likely outcome and the alternative of

33:40

an IPO, then maybe that funds

33:43

the investment in more companies in the first

33:45

place. So I guess what I'm asking is, how do you

33:47

actually measure or is there a way

33:49

to measure innovation or

33:51

what are the tools you use to actually

33:54

measure the effect of some corporate

33:56

behavior of some deal on the

33:58

amount of innovation, which seems like kind of

34:00

a hard thing to strictly quantified.

34:02

It's very hard to quantify directly,

34:05

and so that's why we are relying

34:07

on again industry specific documents.

34:10

So, I mean, what you have to realize is, like

34:12

we're talking here in the abstract, but in the concrete

34:15

case, we have like

34:17

like information.

34:19

So what are the things that come up in the course

34:22

of a case that you're like, Okay, this is useful

34:24

data or this is signal that can tell

34:27

us something about the net

34:29

effect on innovation. That's something in the tech space

34:31

would have.

34:32

So like, for example, if we are

34:35

looking at the concrete case and we are

34:37

looking at let's say a dominant

34:39

company and its practices, we

34:42

often see evidence on

34:44

smaller competitors that let's

34:46

say there might be an anecdote where

34:48

you know, we know that they brought a new product

34:51

and the product in question was very

34:53

popular, but let's say you

34:55

know, the dominant firm

34:58

made sure that the product cannot take off

35:00

by imposing all sorts of restrictions.

35:02

Because you know, there's all sorts of ways. It's very

35:05

industry specific, but there are ways,

35:07

and that's what we're going after. It's so called exclusionary

35:09

practices. There are ways for the dominant

35:12

companies to make sure that that new, upstart,

35:15

cool product, you know, finds

35:17

it hard to find a market and so

35:20

and so that's what we really want to have

35:22

our eyes wide open toward, is

35:25

to be able to detect

35:27

those kinds of behaviors and you

35:29

know, if possible, curb it

35:31

right. And again, extreme behavior would be to literally

35:34

buy up that company that has the cool new product,

35:36

you know, and maybe potentially do

35:38

a killer acquisition, you know, just

35:41

kill that product so that it never it never comes

35:43

to comes to market. So there's all sorts of things

35:45

that companies can do, and

35:47

we have to be very vigilant

35:50

about all these strategies. And companies often

35:52

say, oh, but we are so great, we so

35:54

innovative, and that's really missing

35:56

the point because nobody said they're not innovative

35:59

the big player. It's more about

36:01

how much innovation is lost through

36:04

their anti compantive behavior. The point is we could have

36:06

even better stuff, yea, even better

36:08

working conditions, even more

36:10

innovation if there was more competition.

36:12

So I just have one more question, and I've asked

36:15

this before on conversation

36:17

about anti trust, but I'm curious to get your perspective

36:19

within the context of you know, we're

36:22

this administration is

36:24

undertaking a number of policy

36:27

measures. People call it industrial policy,

36:29

for example, and in some case it

36:31

involves just giving one money, one

36:33

company money, or a few companies money. And

36:36

in theory that you know, that's

36:38

a major advantage to them, let's say a competitor

36:41

might not have. And so we're sort

36:43

of at a time in which you know, we are

36:45

sort of to some extent picking winners

36:47

or picking candidates

36:49

who could be winners depending on how they execute.

36:52

Can you talk a little bit, maybe philosophically or

36:54

from your perspective, how you see

36:57

anti trust enforcement fitting

36:59

in with the sort of broader, broader

37:02

policy landscape in which

37:04

the administration is not just sort of letting

37:06

the invisible hand to determine who's

37:08

going to win and who's going to build on, but it's actually

37:11

shaping and guiding corporate behavior in

37:13

multiple industries.

37:16

HM. So I think what I can best say

37:18

about this is that we work,

37:20

you know, to foster competition

37:23

given other you know, existing

37:25

rules and constraints. So we take the other

37:28

stuff as given, and you

37:30

know, if there's rules out there, there's rules

37:32

we don't. You know, we're not here to change

37:34

legislation or anything like that, and we're looking

37:37

at, hey, is there a competition

37:39

problem within the existing

37:41

rules, and we're going after

37:43

that. So I think it's like just you

37:45

know, each tool in its own

37:48

sort of domain of application. There's

37:50

many policy goals and you know, I don't want

37:52

to comment about other policies outside

37:55

us. What we do is given

37:58

again, what every other I know. Actually

38:00

a good example of this in labor again is

38:02

the union topic. Right,

38:04

So unions got an exception.

38:07

We take that as a given. So we're not going to go

38:10

after unions. You know, they they

38:12

by legislation, and that's really important in

38:14

democracy. If the legislature

38:16

decided to make the law a certain way,

38:19

that's how it is, and we respect that. And

38:21

then we're asking, given that, you

38:24

know, what other competition is there, and how

38:26

might workers and consumers

38:28

gain if we intervene

38:31

in order to foster more competition. That

38:33

would lead to again lower prices, more

38:35

innovation, higher wages, better quality

38:37

jobs.

38:38

So just on this note, Joe kind of

38:40

reminded me. But going back to the supply

38:43

chain issue and the experience of the pandemic,

38:45

I mean, I think there is a realization that

38:48

concentration can have negative consequences

38:51

in terms of overall resiliency

38:53

of the system. So if you have one supplier

38:56

of something that is strategically important

38:58

and then there I don't know, a COVID

39:01

outbreak in their factory or something like that,

39:03

then you could have the entire supply of that good

39:06

curtailed basically. And the other

39:08

thing that seems to have happened recently is there's

39:10

more recognition of the cascade

39:12

effects in the economy. So economists

39:15

like Isabella Weber have been working

39:17

on this idea of systemically important

39:19

sources of inflation or

39:22

where you could get higher prices in one

39:24

particular good that's a building block

39:26

of a number of other things, and then that sort

39:28

of flows through the entire economy.

39:31

So I'm curious as someone who does this at

39:34

the DOJ. This is your job, your day

39:36

to day, is supply

39:38

chain resiliency or

39:41

kind of on your radar at all? Is

39:43

that something that you would be looking at as well.

39:46

I mean, I think one way that

39:48

this intersects with our bread and butter

39:50

concerns is through entry.

39:53

So you know, we're always looking

39:55

at in order to predict whether,

39:58

let's say a merger is going to

40:00

significantly affect competition

40:02

in a negative way. So these two companies

40:05

are merging, and is that going to increase

40:07

prices, that going to reduce wages? One

40:09

key question is once they merge,

40:12

let's say they're trying to do something bad like

40:14

increased prices. Are they going

40:16

to be able to do so? And one way

40:18

that they would be limited in that is

40:21

by entry from other companies.

40:23

If we strongly believe that,

40:26

you know, this is a market that's

40:28

very dynamic and there's a lot of entry,

40:30

or on the opposite, it's a market that's not all

40:33

dynamic. There hasn't been a new company that

40:35

entered for the past twenty years. That

40:37

factors into our reasoning.

40:39

And I think this entry is

40:41

related to some extent to this concern

40:44

about resiliency, because you would think that

40:46

an industry where it's very

40:49

easy to enter, you know, it's very flexible,

40:52

you would have also less

40:54

of that other concern around resiliency

40:57

versus and this is resiliency to monopoly,

40:59

but it could potentially be residency to other

41:02

things. So again, I think that entry

41:04

consideration is really important to

41:06

look at the specifics of the industry

41:09

in terms of economies of scale or other barriers

41:11

to entry that could occur, be

41:14

there or not be there, And again it really

41:16

depends on the specifics of the industry.

41:18

All right, Johanna Marinescue from the

41:20

DOJ, thank you so much for coming on our

41:22

thoughts. That was absolutely fascinating.

41:25

Thank you so much.

41:26

Yeah, thank you so much.

41:27

That was great, Joe.

41:41

I'm so glad we did that episode because I remember,

41:43

I think maybe both with Lena Khan from

41:46

the FTC and then Jonathan Kanter from The DOJ,

41:48

both of which we have had on the podcast.

41:50

At this point, I think we were asking

41:53

them questions about their research process

41:55

and identifying, you know, potential

41:57

targets for lawsuits and things like

41:59

that. It was really interesting to hear

42:02

the economists perspective on

42:04

this totally.

42:05

I like hearing about like all the different tools

42:08

and forms and stuff like that, right, because

42:10

one of the things that came up in some of our previous

42:13

conversations is like, well some of it's like

42:15

anecdotal, right, or some of it you hear things

42:17

and you say, oh, you read something in the paper and you're

42:19

like, hmm, something seems kind of weird here,

42:22

or people are complaining. But then hearing about

42:24

like specific tools, the type

42:26

of data that gets collected. What was

42:28

it the wind loss data?

42:30

Yeah, and also that one form I

42:32

can't remember.

42:34

Yeah, I have it up on my computer

42:37

right now, the HSR, the

42:39

pre merger notification form that you have

42:41

to fill out and that the onus is on

42:43

the companies to sort of demonstrate

42:46

preemptively that the merger is not going

42:48

to worsen the competitive situation.

42:51

I like hearing as you say about like all these

42:53

different now, all of these different

42:55

tactics and techniques and tools to actually

42:57

how these things get evaluated.

42:59

Yeah, and Yoanna is right that I would

43:01

love to as a journalist, I would love to see

43:03

that kind of.

43:04

I wish, you know what, I wish we could subpoena up here. I

43:06

think journalist should have subpoena power over our

43:08

corporate data. I think that would only be fair.

43:10

I guess we do have freedom of information requests,

43:13

but it's not quite the same companies. The

43:15

other thing I was thinking about, you know, I

43:17

know you keep asking this question to various

43:20

antitrust people about, you

43:22

know, the the active industrial

43:25

policy of the Biden administration versus

43:27

questions over competition and

43:29

things like that, and I think, you know, there is

43:32

a tension there that I think is probably

43:34

as yet unresolved.

43:36

Yeah.

43:36

I think so too.

43:37

I mean it's interesting or maybe

43:39

you know, one way to view it, like there

43:42

is this tension. The other argument I

43:44

think one could make is the

43:46

fact that the US is to some extent, picking

43:48

winners even further emphasizes

43:51

the need to enforce anti

43:53

trust and to so that you

43:56

know, because once you've been selected as a winner, a

43:58

candidate winner, so they're actually still

44:00

competing rather than basically

44:02

rent seeking. So maybe

44:05

they go hand in glove more than I

44:07

appreciate.

44:08

Absolutely. Shall we leave it there.

44:09

Let's leave it there.

44:10

This has been another episode of the Oudlots

44:12

podcast. I'm Tracy Alloway. You can follow

44:15

me at Tracy.

44:15

Alloway and I'm Joe Wisenthal. You can follow

44:18

me at the Stalwart. Follow our guest Joanna Maronescu.

44:20

She's at m Joanna. Follow

44:22

our producers Kerman Rodriguez at Kerman

44:25

Erman, dash Ol Bennett a Dashbot, and Kelbrooks

44:27

at Kelbrooks. Thank you to our producer Moses

44:30

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