RECENT DEVELOPMENTS

Housing

• CORPORATE LANDLORD PAYS UP. Invitation Homes, a $21 billion public company spun off from BlackRock in 2017, is the largest owner of single-family rental homes in the U.S. While corporate, single-family home companies like Invitation only own about 15% of the housing market overall, they tend to own higher percentages of less expensive homes, concentrated in certain neighborhoods. A bipartisan FTC lawsuit filed last month detailed how Invitation Homes used their market power to charge tens of millions in junk fees, costing renters each up to $1,700 annually, and withheld 60% of security deposits. This week, Invitation agreed to settle and refund customers $48 million.

Improving Health Care

• PBMs‘ INSULIN RACKET.  U.S. insulin costs have risen 1,200% since 1999. Big drug manufacturers often get blamed, but the FTC has filed a lawsuit shining a light on how the “Big Three” pharmacy benefit managers (PBMs,) that control 80% of the market–CVS Caremark, Cigna’s Express Scripts, and United’s OptumRx—also contribute to high prices through illegal rebate schemes.  FTC’s lawsuit follows the agency’s release of an interim investigative report highlighting the Big Three’s abuses across all drugs, which led Express Scripts to sue claiming defamation. Advocates and bipartisan members praised the FTC’s lawsuit, including Rep. Comer (R-KY-1,) and Sen. Tester (D-MT.) Across the country, pharmacists continue protesting PBMs, this time at United’s Optum HQ in Minnesota, for driving up prices and shuttering independent pharmacies.
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• BIG ONCOLOGY? Cancer costs billions annually to treat in the U.S., so it’s no wonder big wholesalers, healthcare middlemen that distribute drugs to hospitals, pharmacies and other health care facilities and control 90% of the market, are getting in on the game. Specifically, two wholesaler giants—McKesson and Cardinal Health—are moving to acquire entities that manage oncology medical practices, also a highly concentrated market. Economic Liberties, along with several healthcare advocacy organizations, sent a  letter urging the FTC to block both mergers to prevent increased costs and potential drug shortages for cancer patients. The FTC has yet to indicate whether they will block either deal.

Airlines

• FREQUENT FLIER CON? Airline loyalty programs started as perks for business travelers in the 1980s, but have since grown into multi-billion dollar businesses for the “Big Four” airlines, more valuable than the carriers themselves. For example, in 2020, United’s MileagePlus program was worth $22 billion, while the airline’s market cap was only $10.6B. Increasingly, however, the big airlines are changing reward terms without recourse for customers. In May, CFPB and DOT hosted a hearing with advocates and ultra low-cost carriers, all welcoming scrutiny of the largest airlines’ reward programs. Now, DOT has launched an inquiry demanding to know whether the Big Four are devaluing points, deploying dynamic pricing, and imposing fees in their programs. Airline responses are due December 4, 2024.

Reining in Big Tech 

• SPEEDY GOOGLE AD TECH TRIAL. While Google awaits a ruling about the future of its search business, they are on trial for monopolizing the online advertising (ad tech) industry to earn $150 billion in annual revenue. Ad tech consists of three distinct markets: (1) publisher ad servers that enable news outlets like Gannett and News Corp to sell ad space; (2) tools allowing advertisers to offer ads; and (3) exchange auctions that match publishers and advertisers to sell ads. DOJ claims Google has monopolized all of these markets to extract more than 30% of all ad revenue, not by offering a superior product, but through acquisitions like the 2007 deal for DoubleClick and anti-competitive conduct. For example, trial witnesses claimed they can’t use alternative publisher ad servers for fear of losing access to Google’s vast number of advertisers. Only closing arguments remain, so a decision could come early in 2025. Stay up to date on all the Google cases by following Big Tech on Trial.
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• DOJ TARGETS NVIDIA. Nvidia is the world’s most valuable chipmaker, and is the dominant manufacturer of chips for the AI market. Analysts expect Nvidia’s 2024 revenue to top off at $120.8 billion, raking in more profit than its next largest rival will make in sales. This rocket growth has led DOJ to issue legally binding subpoenas to Nvidia and other companies for potential market abuses, such as penalizing customers who don’t exclusively use Nvidia chips. The subpoenas stem from a June agreement between the DOJ and FTC to divvy up oversight of the AI market. To learn more about consolidation in the chips market, check out Economic Liberties‘ report from earlier this year.

Blocking Mergers

• KROGER/ALBERTSONS WRAPS. FTC’s attempt to secure a preliminary injunction to block the Kroger/Albertsons grocery merger and run their own in-house proceeding has now finished trial. The proposed merger is the largest for grocery companies in U.S. history. One key issue was whether Kroger and Albertsons compete with each other, or instead, with the likes of Walmart and Amazon. Parties had to submit final written arguments by September 27, and now the final decision rests with the judge. During trial, reps from United Food and Commercial Workers (UFCW) locals rallied against the merger, and several members have expressed support for FTC’s case, including Reps. Schrier (D-WA-08) and Caraveo (D-CO-08.) Separately, Kroger is suing to challenge the constitutionality of the FTC’s administrative court in Ohio, and eleven Republican attorneys general, led by OH AG Yost, filed an amicus brief in support of the claim.
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• HAND BAG SHOWDOWN. Tapestry, owner of brands such as Kate Spade and Coach, made an offer to acquire Capri, Michael Kors’s parent company, for $8.5 billion. All five FTC commissioners agreed to sue in April, leading to a September trial. The FTC argued the deal would consolidate 58% of the U.S. under-$1,000 “accessible luxury” handbag market, raising prices and harming competition. The trial has wrapped, and a judicial decision could come any time. A successful lawsuit could have a chilling effect on mergers in the fashion industry, which has a history of serial acquisitions.
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• BANK MERGERS BEWARE. DOJ Antitrust and the banking regulators (FDIC, OCC and Fed) share authority to review bank mergers. Recently, however, banking regulators rarely block mergers—contributing to the loss of over 11,000 banks since the 1990s. The DOJ is making moves to be more aggressive. Following up on a fiery speech in June 2023, DOJ Antitrust has now withdrawn its 1995 Bank Merger Guidelines, which focused on deposit concentration and physical branch overlaps, announcing they will instead apply the more comprehensive analysis of the 2023 Merger Guidelines to bank mergers. The FDIC released guidance that reflected a similar change. University of Michigan Prof. Jeremy Kress predicts these developments could lead regulators to block the proposed Capital One/Discover deal, but only time will tell.

Lowering Prices

• “VISA TAX” NO MORE? Annually, consumers initiate over 100 billion debit card transactions, and Visa processes 60% of them. According to a new lawsuit from DOJ Antitrust, Visa collects $7 billion in fees from merchants for processing these payments, at an operating margin of 83%.  The DOJ’s lawsuit alleges Visa monopolized the debit market by evading the Durbin Amendment and pushing banks and big retailers into exclusive contracts. DOJ’s case could take years to resolve and only applies to the debit market, so advocates are still pushing for Sen. Durbin’s (D-IL) Credit Card Competition Act. This latest case adds to Visa’s legal woes. They recently settled an antitrust case from debit processing rival, Discover’s Pulse Network, and a judge in NY federal court rejected their proposed settlement with merchants over collusion and high fees.
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• ROADMAP TO REIN IN UTILITIES. Electricity prices have increased 10 fold since the 1980s. During the same time period, mergers killed off 50% of independent, retail utilities and facilitated the rise of vertically-integrated, investor-owned utility (IOU) monopolies. A new paper from Economic Liberties and the Massachusetts Institute of Technology highlights how this IOU consolidation is driving up costs and inhibiting adoption of cheaper, renewable alternatives. The paper details how FERC and Congress can take steps to change IOUs’ incentives to increase competition, prevent further mergers, spur investment in electricity transmission and innovation, and limit IOUs’ corrupt lobbying expenditures using ratepayers’ funds.

ICYMI

• FTC’s case against Amazon has survived a motion to dismiss. A federal judge only dismissed some state claims.
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• Chair Khan joined CBS’ 60 Minutes to discuss the agency’s work in lowering healthcare costs, protecting workers, fighting big tech, and a town hall with Rep. Ocasio Cortez (D-NY-14.)
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• ReThink Trade released a database and interactive map of over 100 pieces of state legislation that protect people from harmful AI practices, privacy violations, and anticompetitive practices, which could be preempted by international “digital trade” provisions.
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• Alaskan and Hawaiian Airlines must preserve their rewards programs and competition as part of the DOT’s agreement to approve their merger.
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• Economic Liberties Senior Fellow for Healthcare, Benjamin Jolley, released data showing nationwide 2,275 out of 60,867 pharmacies closed so far in 2024.
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• BlackRock, Microsoft, MGX, and Nvidia are joining forces to create data centers and energy products for AI, one of the biggest investment vehicles ever raised on Wall Street. Meanwhile, Apple and Nvidia are discussing investing in OpenAI, home of ChatGPT.
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• Section 828 of the FY25 NDAA would give the military the ‘right to repair‘ its equipment, which is facing industry attacks. Sen. Warren (D-MA) is also probing private contractors on how much they are spending in lobbying to kill the amendment.
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• 88% of Democratic voters support the work of DOJ Antitrust AAG Kanter and FTC Chair Lina Khan.
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• Apple Airpods now feature hearing aid capabilities after the FDA made hearing aids over the counter in 2022, driving down costs.
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• WillScot, a modular space provider, and McGrath Rent Corp, which rents and sells modular buildings, mutually agreed to terminate after the FTC began requesting information about the merger.
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• Rep. Takano (D-CA-39) wants to revive the Office of Technology Assessments, which provided Congress impartial assessments of emerging technologies until 1995.
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• Private equity roll ups have led to increased cost and decreased quality of care at vet clinics. Check out Economic Liberties‘ comment submitted for the FTC and DOJ RFI on serial acquisitions in this industry.
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• Rep. Deluzio (D-PA-17) urged Secretary of Agriculture Tom Vilsack to investigate dominant meat processing firms for violating the Packers and Stockyards Act. Also, FTC submitted a comment supporting the USDA’s proposed rule to expand the scope of what constitutes unfair practices under the Packers and Stockyards Act to protect farmers from unfair practices by dominant meat packers.
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• Check out Bloomberg’s coverage on DOJ Antitrust Division AAG Jonathan Kanter’s tenure.
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• Ralph de la Torre, CEO of the collapsed hospital network Steward Health, faces a subpoena and contempt charges from the HELP committee for skipping a congressional hearing, and is suing the Committee in response.
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• CEO of Novo Nordisk testified in front of Senate HELP Committee, pledging to address “structural issues” with PBMs to lower prices.
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• Senators Durbin, Klobuchar (D-MN), and Duckworth (D-IL) are asking FTC and DOJ to investigate generative AI over harms to digital content producers.
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• The courts sided with Illumina and Grail over the EU’s attempt to challenge the merger.