Springboard Antitrust Series: Concentration and Competition in California
The California Law Revision Commission (CLRC) has begun its series of meetings to explore potential changes to the state’s antitrust law. Today, our topic is one of seven specific areas of antitrust law that the CLRC is considering revising: concentration, or when a small number of companies comprise a large part of the activity in a business segment.
The CLRC commissioned a working group report that discusses labor market concentration and monopsony, concentration in key California sectors, and potential reforms across regulatory bodies to limit merger activity and guide the agenda of its recent meeting on concentration in the state.
As the CLRC thinks about importing new, potentially harmful antitrust frameworks to the state of California, policymakers should be aware of the pitfalls of this working group report.
1) Corporate concentration can boost productivity and wages
– “Despite claims by neo-Brandeisian and other anticorporate ideologues, increasing corporate concentration can boost productivity and wages. So, the push to break up large companies is anti-worker and anti-middle class,” writes Trelysa Long of the Information Technology and Innovation Foundation (ITIF) about similar reports mischaracterizing concentration’s important economic impact. “Moreover, as these firms become more productive and grow larger, they also tend to pay higher wages to their employees, reduce prices for consumers, and invest more in innovation. Thus, policymakers should reject neo-Brandeisian efforts to break up large firms and instead encourage smaller firms that can benefit from productivity gains when they grow to become larger.
2) Experts have already pointed out that any connection between competition harm and concentration is speculative.
– “Despite the measured rise in concentration in some industries, in the vast majority of markets, it remains well below the levels that would normally trigger antitrust concern,” writes Joe Kennedy of ITIF. “But there are measurement issues as well. For one thing, these studies often use an inappropriately broad definition of “the markets,” and omit the role of imports that reduce concentration. Second, most look only at national concentration levels, when many markets are local in nature. Recent studies conclude that concentration in most local markets has been steady, or even falling. Finally, a certain degree of concentration may be good. Rather than leading to a decline in competition, it may result in increased competition in which more productive firms increasingly gain market share over their less productive and less innovative rivals.”
This report continually leaves out stark realities in its explanation of merger activity across the U.S. The CLRC and other antitrust regulators should understand the U.S. merger ecosystem in order to make a sound, procompetitive recommendation.
The report regularly cites the FTC’s and DOJ’s new and untested 2023 Merger Guidelines to underscore its call for increased merger regulations in California. However, the report fails to acknowledge how these updates could greatly limit companies’ ability to innovate and grow, all at the expense of small business owners and Californians who love the industries that make the Golden State what it is.
– Mergers inject resources that help companies and industries grow—without them, consumers and small businesses will be harmed
– “The agencies peddle a false narrative on concentration in our economy, are quick to dismiss the benefits and efficiencies mergers create for consumers, and ignore the positive impact mergers have on innovation,” noted Executive Vice President and Chief Policy Officer Neil Bradley of the U.S. Chamber of Commerce. “The agencies have lost repeatedly in court and these guidelines are a back door attempt to change the law and ignore judicial precedent. These guidelines are designed to chill merger activity, which will deny smaller companies access to the capital and expertise they need to grow and place U.S. businesses at a disadvantage with their global competitors. Congress and the courts should continue to reject the agencies’ efforts to undo the consumer welfare standard and decades of antitrust precedent that has served the U.S. economy and consumers so well.”
– Former Treasury Secretary Larry Summers called the revised Guidelines a “substantial risk.” “‘These guidelines—by moving away from an emphasis on lower prices for consumers to broader abstractions — are a substantial risk,’ Summers said on Bloomberg Television’s ‘Wall Street Week’ with David Westin. ‘I wish that this stepping back and offering merger guidelines had been taken as an opportunity to rationalize the policy.'”
– The International Center for Law & Economics (ICLE) states, “[the guidelines] deter merger activity as a whole, regardless of the risk posed to competition.” “ICLE President Geoffrey Manne observes, ‘the overbroad guidelines are clearly designed to deter merger activity as a whole, regardless of the risk posed to competition. In so doing, the FTC and DOJ have reduced the utility of the guidelines to courts and frustrated the very coordination benefits that guidelines have historically sought to create.'”
– Chief Economist Brian Albrecht notes, “the FTC and DOJ cannot simply declare the existence of new antitrust law since courts are the ultimate arbiters of merger disputes. Small and medium sized firms without the benefit of costly specialist attorneys stand to suffer most directly as a result of the disruption caused by these new guidelines.”
As the CLRC considers the conclusions of the report, they must be mindful of the harm that drastic revisions to merger enforcement will cause to California’s small businesses, consumers, and economy.