FTC and DOJ Conclude Listening Forums on Direct Effects of M&As | Wilson Sonsini Goodrich & Rosati
On May 12, 2022, the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) concluded their Listening Forums on the Direct Effects of Mergers and Acquisitions, a series of four virtual sessions focused on competition in the food and agriculture, healthcare, media and entertainment, and technology industries, respectively. The stated purpose of the forums was to obtain a wide range of views and input from real-world market participants before revising the merger guidelines. Accordingly, each session began with opening remarks from FTC Chairman Lina Khan and DOJ Assistant Attorney General Jonathan Kanter, followed by scheduled speakers and ending with an open forum for public comment. .
Although each forum highlighted a different sector of the economy, there were a number of recurring themes, including concerns about diminishing consumer choice; decrease in innovation; the negative impact of mergers and market dominance on labor markets; and the effect of exclusionary practices, including self-preference, on small market players. It should be noted that participants largely ignored the impact of consolidation on prices, historically the focus of antitrust scrutiny. In fact, when speakers mentioned pricing, it was often to complain about the ability of large companies to charge consumers less than their smaller competitors. The sections below summarize the topics covered in each listening section and highlight these common themes. Also noteworthy are the sectors that were selected for each session, which provide a signal on which antitrust agencies plan to focus their resources.
Food and agriculture
The March 28 forum included speakers from the beef, pork, dairy, wheat and grocery sectors. They explained that, from their individual perspective, consolidation and exclusionary practices reduce consumer choice, stifle innovation and endanger food safety. In her opening remarks, President Khan spoke about the government’s approach to ensuring “fair and competitive” markets, saying “some evidence” suggests that consolidation in the sector has led to higher prices, lower farmer incomes and a less resilient food system.
Stakeholders largely echoed these concerns. Independent grocery store owners have complained about the inability to compete with larger stores like Walmart, which they say could use its buying power to dictate terms to suppliers, demand priority delivery and extract prices that its smaller competitors could not. This Walmart effect has left smaller community grocery stores struggling to compete. Participants explained that as these community grocers become less competitive and exit local markets, consumers will see a decrease in product variety and selection or a product offering that does not meet consumer demand.
Stakeholders also argued that large companies have co-opted niche labeling markets created by smaller suppliers, and that the shortage of agricultural R&D players has reduced innovation in pest control chemicals. weeds, which could lead to future weed resistance and reduced crop yields.
Of particular note, in her later comments, Chair Khan said consolidation in one market could have “cascading ramifications” in “seemingly unrelated markets” that agencies should keep in mind. These concerns have generally been dismissed in the past, as enforcement has focused on the effects on particular product markets where the merging firms actually compete. Concerns about potential impacts in other markets are widely seen as too remote and subject to exogenous market forces potentially unrelated to the merger, making it too speculative to serve as a basis for enforcement. While agencies may certainly consider such effects in the future, it appears that this will not be the predominant issue in future merger reviews because, if there is no issue in the market that makes the subject to the merger, it seems unlikely that the deal would cause problems in other unrelated markets.
The healthcare forum, held on April 14, focused primarily on the hospital sector, with the bulk of the session devoted to hospital staff affected by horizontal and vertical integration that lowers wages staff, lowers the quality of patient care and raises prices. Participants reiterated the view that investments by private equity firms in the healthcare sector create business incentives in which increased profits lead to decreased patient care. Speakers also argued that hospital mergers have led to staffing shortages that have contributed to diminished care, especially in rural and underserved communities. It seems unlikely that the agencies would consider the investments of private equity firms themselves as antitrust issues absent situations where those firms also have investments in (or own) competing businesses.
Stakeholders also argued that the vertical integration of Pharmacy Benefit Managers (PBMs) with insurers has led to a decrease in the quality and choice of care and an increase in prices.
Media and entertainment
The April 27 forum brought together a host of speakers from the news, television, and music industries who were primarily concerned with reducing quality and quantity in their respective industries. Journalists said consolidation in the news industry has diminished the quality of news by increasing the number of errors and failing to stop the spread of misinformation. They also argued that the reduction in the quantity of newspapers resulted in the neglect of local concerns, as the merged companies focus on nationally timely topics.
Speakers from television and media said that their industries are “cultural” only, and that “extraction-based” business models not only ignore this aspect of the market, but reduce the quantity and the variety of content, often to the detriment of diverse voices.
Finally, as in previous forums, speakers from all sectors lamented the effects of consolidation on the labor market, leading to lower wages for their services.
The latest listening session, which took place on May 12, brought together a wide variety of voices from across the tech industry and beyond, including a startup founder, venture capitalist, member of a privacy organization and the owner of a small bookstore.
Speakers largely reiterated the same concerns as those in previous forums, namely that the consolidation of their respective markets has reduced the quality, quantity and variety of consumables, while driving down wages.
Responding to panelists, President Khan acknowledged concerns that big tech platforms may become “key arteries of commerce” that have become essential to everyday life. She favored the idea that such platforms could dominate their users with little or no controls, depriving them of meaningful choice, stifling innovation and absorbing the “lion’s share” of profits from a user. She also said consumer protection issues can arise in mergers in which sensitive consumer data is transferred from one company to another, potentially subjecting locked-in users to heightened privacy terms. Finally, she expressed concern about mergers of large companies and emerging small organizations in adjacent markets that could become potential competitors.
AAG Kanter also expressed concern about network effects, lock-in and self-preference in some technology markets. As he also explained during the media and entertainment forum, AAG Kanter said that the consolidation and use of AI can limit the flow of information to the detriment of political health.
The main purpose of these forums was to hear from industry participants and, as expected, the range of topics was wide and varied. The forums have emphasized non-price factors such as quality, variety and innovation, consistent with recent agency interest in exploring the scope of antitrust law and new theories of harm. It remains to be seen to what extent these listening forums will influence regulators’ thinking in revising merger guidelines, but they offer insight into potentially broad interpretations of anticompetitive harm that agencies could adopt.