How a DOJ Economist Approaches Antitrust in America

This episode delves into the nuances of antitrust enforcement and its broader implications for the economy, focusing on the role of the DOJ's antitrust division.

1. Antitrust laws target sectors where lack of competition leads to economic distortions like high prices and low wages.
2. The DOJ uses comprehensive data analysis to investigate potential anti-competitive behaviors.
3. Corporate concentration can lead to significant negative impacts on both the economy and individual industries.
4. High-profile antitrust cases, such as the Penguin Random House merger, illustrate the application of these laws in real-world scenarios.
5. Effective antitrust enforcement can enhance economic resiliency and innovation by preventing monopolistic practices.

1: Introduction

The hosts introduce the episode's focus on antitrust economics, with a brief overview of the topic's relevance in current economic conditions. Joe Wiesenthal: "Antitrust enforcement could play a significant role in managing inflation through its impact on market competition."

2: Understanding Antitrust

Discussion on the evolving definition of antitrust and its implications beyond simple market pricing. Ioana Marinescu: "Antitrust scrutiny is expanding to include diverse aspects of corporate behavior, not just pricing but also impacts on wages and innovation."

3: The Role of Data in Antitrust Enforcement

Exploration of the types of data the DOJ analyzes to detect anti-competitive practices. Ioana Marinescu: "We look at market shares and direct competition to assess the potential for anti-competitive harm."

4: Case Study Analysis

Insight into specific antitrust cases, including the thwarted merger of two major publishing houses. Ioana Marinescu: "The merger would have reduced competition for high-profile book deals, negatively affecting authors."

5: Economic Impacts of Antitrust

Discussion on the broader economic effects of rigorous antitrust enforcement. Ioana Marinescu: "Strong antitrust enforcement can lead to higher wages, more innovation, and better product quality across industries."

1. Be Informed: Understand the impacts of corporate concentration on your industry to advocate for fair practices.
2. Support Competition: Encourage policies that foster competitive markets, enhancing consumer choice and innovation.
3. Monitor Market Health: Keep an eye on mergers and acquisitions within your sector that could affect market dynamics.
4. Educate Others: Share knowledge about the benefits of antitrust enforcement with peers and through social media.
5. Engage with Policymakers: Participate in discussions and public consultations on antitrust laws to ensure they meet the community's needs.

The Department of Justice and the Federal Trade Commission have taken an invigorated approach to antitrust under the Biden administration, targeting companies for labor issues like non-competes, in addition to looking at more traditional measures of anti-competitive behavior, like higher pricing. But how does an economist examine the impact of monopoly practices on the overall economy, or take into account new and different measures of their effects? In this episode, we speak with Ioana Marinescu, principle economist at the DOJ's Antitrust Division, about how she analyzes these thorny issues and what she's learned from specific recent cases, like Activision/Overwatch League, or Penguin Random House’s attempted acquisition of Simon & Schuster.

People

• Ioana Marinescu

Companies

• Department of Justice, Penguin Random House, Simon & Schuster

Books

• None

Guest Name(s):

• Ioana Marinescu

Content Warnings:

• None

Joe Wiesenthal
As a real estate manager, principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Their teams apply local insights and global perspectives to help identify the most compelling investing opportunities. Principal asset management actively invested. Learn more@principalam.com Dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors, LLC.

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Tracy Alloway
Bloomberg Audio Studios podcasts Radio news hello, and welcome to another episode of the Odd Lots podcast. I'm Tracy Alaway. And I'm Joe Wiesenthal. Joe, we've done a little bit at this point on antitrust. I feel like kind of interestingly, the first time it ever really came up substantively for us was, I think it was like way back in 2020 or maybe 2021, where we were talking about the potential for antitrust enforcement to bring down inflation.

I don't know if you remember that totally. No, I do remember it. I think we were talking about it actually in the context of shipping at the time. Of course, the major source of inflationary pressure was the stress on supply chains. But then that broad awareness, I would say, and then it's, since people paying attention to it more, which is that, how do bottlenecks emerge?

Joe Wiesenthal
How do inflationary bottlenecks emerge? One theory, one source of these inflationary bottlenecks is parts of the economy where there's not very good competition. Yeah, absolutely. And the other interesting thing that's been happening recently is it feels like definitions of antitrust and anti competitive practices have been expanding. Right.

Tracy Alloway
You hear this term hipster antitrust all the time. This idea that maybe anti competitive behavior doesn't just materialize in things like prices, but also in things like labor practices. Totally. I think the rise of the huge tech giants has contributed to this, because you do have this situation in which it feels like there are entities. Look, if you have like a gigantic steel monopoly or whatever, how is that going to manifest itself as being bad for the economy?

Joe Wiesenthal
Probably by really high steel prices. Right. I think in some of these other business models, you sense that there is concern about corporate power, corporate concentration, extremely powerful companies, but it doesn't necessarily manifest as higher prices. In fact, it may be lower prices and it may be, or maybe there's something not priced at all, like. Right.

None of us pay Facebook directly or whatever it is, some of these big social media giants. And so I think that has probably contributed to some extent forward. Like, how do we address market power through outside the lens strictly of consumer prices? Absolutely. And the other thing, just going back to shipping, it feels like antitrust is also potentially getting more attention in the context of supply chain resiliency.

Tracy Alloway
Right. So, yes, you can have high prices because of a monopoly that dominates a particular industry, but you could also have a situation where if something happens, if there's a choke point on that business, as we've seen a number of times in recent years, that it creates a vulnerability for the entire economy. So all of this got me thinking. You know, clearly there is an impact from antitrust on the overall shape and functioning of the economy. And you see that kind of burst into the policy debate every once in a while.

But I really wanted to dive into how do you start to judge the effects of corporate concentration on the overall economy? And I have the perfect guest for you, Jo. We're going to be speaking to someone whose day job is basically exactly this. We're going to be speaking with Joanna Marinescu. She is the principal economist at the Department of Justice's antitrust division, also a professor at the University of Pennsylvania.

Joanna, thank you so much for coming on ophots. Thank you so much for having me. What does a principal economist at the DOJ actually do? Walk us through your sort of day to day. Absolutely.

Ioana Marinescu
So, you know, in my day job, what we do is we investigate different companies for potential violations of the antitrust laws. And so all these competition issues that you just talked about. And so as an economist, what I do there is I oversee the work of my whole team of PhD economists, where they go and do data analysis in order to uncover the effects of anticompetitive practices on all sorts of outcomes, like prices and wages and the quality of products and so on and so forth. And we use both quantitative analysis as well as interviews and documents that we are able to get from the companies, like emails, to better understand how competition works in that particular case and whether there is, in fact, a sign of anti competitive behavior. So we talked about in the intro the sort of antitrust thinking, maybe widening the aperture of where you would look to find evidence of uncompetitive behavior beyond perhaps just consumer prices.

Joe Wiesenthal
What type of data are you looking at when you talk about you're sifting through all this data to look for evidence. What are the types of data that you might look at and what might be? I guess the signatures of a company or an industry in which anticompetitive actions are a problem. So there are two main types of data that I would point to. The first one is on market shares.

Ioana Marinescu
So you look at the share of the companies in their market. So this could be a labor market or a product market. So, you know, if a company has a high share and merges with another company that also has a high share, then that's likely to raise anti competitive concerns in the sense that prices or wages might be affected in a bad direction. So that's one way that we look at things, again, calculating market shares. And so that's for one approach to looking at potential for anti competitive harm.

And we can also talk about dominant firms. So the firms that have monopoly power, that's also one of the ways to measure it, is for market shares. And then the second way is looking at what we call head to head competition. So how much do firms directly compete with each other? And this would be found in things like win loss data.

So when you look at a sales data, you're looking at what company you lost your business to. And that would show if you often lose business to another company that now you're trying to merge with. Well, once you're merging, there's no longer going to be that competition, that intense competition between the two. And so that's the second, like, broad category of data. And there's similar data for workers.

If you constantly lose your workers to your competitor and now you're merging, that competition is going to be lost. Oh, that's really interesting. So something like that win loss data, how would you actually access that? Where does that come from? So that comes directly from the company's data.

So we, because, you know, we're the Department of Justice, if you're under investigations, the companies must send us their data, not any data, but of course, the data that's needed for the investigation that concerns the specific concern we have with potential adverse effects on competition. So companies send us the data, whether it's, again, on the product for labor markets, it would be data from things like an applicant tracking system where they see where people are coming from. So that can also allow us to know where they're hiring employees from and therefore trace back the competition for labor. So that sort of data, you would get that once an investigation had already been started, talk to us about identifying potential investigations and what sort of information and data you would be looking at there. Or maybe you're looking at something like the overall, like, impact on the labor market or prices, which we've already discussed.

Right. So for mergers, that's sort of the bread and butter. There is a requirement for companies to file so called HSR forms for any transaction that's above some threshold. And so in those forms, they give us some basic information about why they're seeking to merge, what markets this might affect, and so on and so forth. And actually, we now have new proposed additional information on labor so that it's easier to look at potential labor market effects.

So based on that, there's an initial screening to see if we think that there might be potentially anti competitive effects from the merger. Then there's an initial investigation phase. And basically it goes from step to step until we are satisfied that it's likely not going to substantially lessen competition, or it could end up in a lawsuit to try to block the merger. If, after having done a lot of analysis and data and interviews, we conclude that there's a substantial risk that the transaction, the merger, would lessen competition. Not necessarily a specific merger or an example, but just what would be a style type of something.

Joe Wiesenthal
Imagine company, widget company a, wants to merge with widget company b. They fill out this HSR form for you. What might be an example of something that shows up that crosses some threshold, and, in fact, is there a threshold, like, is there a level of x or y in which, like, the red flag goes off, or is there some level of subjectivity? Walk us through, like, looking at that data, when the data flashes some alarm that say, okay, this is not a good deal. So the main, there are many, of course, considerations that be hard to go through here, but one of the main things is the market shares.

Ioana Marinescu
So if we have some evidence that these companies are competing in some market for some widget, some specific widgets, so that's a specific product market, let's say. And if both of those companies have a high enough market share, that raises alarm. And in the merger guidelines, so we have guidelines where we tell everybody, this is public, you can go see them, they are brand new. We just put them out. 2023 merger guidelines.

It tells you exactly what that threshold is. So what must your share be for us to conclude that there is a risk that competition might be hurt in this merger? And again, the general principle is that the two companies must have a high enough share in the market. So basically, the market, we call it concentrated. So there's few companies.

Each one has a large share. And further, we require that after the merger, their share of the two companies combined increases enough that it threatens competition so that's really a key screening tool that we use, and that's going to play an important role as we go on with the investigation. And why are shares important? They are important as an indicator of how anticompetitive effects could happen. And this could be either through a reduction in what we call, again, competition, direct competition for customers or for workers.

Or it could also be through potentially an increased risk of collusion that whether explicit or implicit, the fewer actors there are in the market and the easier it is for them to agree, let's say, to, you know, increase prices a little bit, or let's say, keep wages down a little bit more, something like that.

As a leading real estate manager, principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced teams are uniquely positioned to uncover compelling opportunities in today's market, giving our clients an exclusive advantage. Principal asset management actively invested. Learn more@principalam.com investing involves risk, including possible loss of Principal. Principal Asset Management SM is a trade name of Principal Global Investors, LLC.

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Tracy Alloway
Walk us through the sort of side effects of having high corporate concentration. Yeah, so there are many adverse effects. But broadly, some of these effects are higher prices, lower wages, less innovation. So, you know, just broadly and lower product quality, lower wage quality. So, for example, for the labor market, if we just take that as an example because of a lack of competition.

Ioana Marinescu
So if you're an employee and you don't have anywhere else to go, that would be a good firm that you would like. Similarly, just as well as your current employer, that means that the employer can pay you less because where are you going to go? And so I have a paper, for example, and others have written related academic papers, and you can show that if we got rid of this lack of competition, wages may increase by as much as 20% on average in the extreme case that we could without all issues with competition in the labor market. Now, if you look at the product market, so there's a lack of competition in various markets for various widgets. Not only that will increase prices, reduce quality and reduce consumer choice, reduce innovation, but interestingly, that will also have an adverse effect on workers, which is an indirect effect, because when you have a monopoly, a monopoly makes less stuff, they produce less widgets, fewer widgets.

And in order to produce fewer widgets, well, that also means fewer widgets means you need fewer workers to produce the widgets. So there's less demand for labor, less demand for workers. So therefore, that reduces employment opportunities. And there's really cool new academic work that's still work in progress by Tanya Babina and co authors suggesting that when the antitrust authorities go in and enforce the antitrust law and stimulate competition in the product market, you see an increase in employment as business flourishes. And they also need more workers to produce whatever it is that they're producing.

Joe Wiesenthal
One of the arguments that one thing that can theoretically happen, I don't know if it happens in practice, but one thing that can theoretically happen is that two companies can combine and become more efficient. And that means that they have economies of scale, and maybe they can lower prices, maybe that scale brings consumer benefits with the lower price, etcetera. From an economist perspective, I'm sure there are many instances where companies say that that's what will happen, and it seems at least possible. Is it possible, in your view, that concentration can lead to better consumer outcomes, either from a price perspective or from a, here's a very powerful company that then becomes a wage setter, or you just sort of, would you be per se skeptical of those claims? So, you know, in general, as with every claim where, you know, the companies have an interest in making that claim, we need to examine it with fairness and with evidence.

Ioana Marinescu
And if you look at the merger guidelines, there's a whole section on efficiencies, recognizing that that's a possibility. But we also ask that those efficiencies, if claimed, be well documented, clearly articulated, verified by outside experts, so that we can start to potentially consider them. And we find that oftentimes that's just not the case. And so, you know, again, it's all a fact based investigation and you have to look at it. But that's certainly something that we consider in the holistic assessment of what's going to happen.

Since it's a predictive exercise, we have to assess the risk. We take that into account as one. Element, just to press you on this part further, as an economist coming to the table. And there are other people, there are lawyers, there are others at the table. What are some of the tools in your arsenal that you might use, or tools in your toolbox, per se, that you might use to make such a prediction to evaluate claims of economies of scale and such things.

So essentially, it's important to note that it's not up to us, the Department of Justice, to make that point. It's rather that the companies must be able to prove with solid evidence that these efficiencies are likely to result. And not only that there are efficiencies at all, which might well be the case, but that they are sufficiently substantial that they will negate the anticompetitive effects that we fear. And so, and, of course, the specifics, again, scale specific. But what's really important is not just to show that there are some efficiencies, but that they are, again, substantive enough that the initial concern that we had for all the adverse anticompetitive effects is likely not to materialize because those efficiencies make the market so much more competitive.

But again, the burden of proof in terms of who must show that that's the economist of the other side. So one of the more interesting cases that the DOJ took on over the past, guess it was a few years since it started, but the penguins acquisition of Simon and Schuster, and part of this is media navel gazing, because it involves the publishing industry. And if you read some of the complaints and the other documents around this, there is just oodles and oodles of information on, like, the actual numbers behind publishing and how they come up with things like author advances, how much they spend on marketing, stuff like that. But walk us through the economic lessons of a case like that, because there seem to have been some trade offs in that particular action. So, you know, I was really excited to see that case.

This was ongoing when I arrived in my job at the division, and just to table said a little bit, that case was a case where Penguin random House was seeking to merge with another big publisher, Simon and Schuster. And we always first look at competition in this industry. And in this case, we're interested in competition for authors. So, you know, these big publisher publishing houses, they are trying to buy the rights to authors books. And so for big name authors, there aren't that many publishing houses.

In fact, there are only five so called big five publishing companies that vie typically for books by famous authors. And so we focused specifically on what we called anticipated top selling books, which were books that would get an advance of $250,000 or more. So we're talking here about likely big selling books. And so in that market, again, for those big books, Penguin random House had a market share. There we go.

Market share. Remember, we talked about that before of 37% and Simon and Schuster, 12%. And so you can see that together, after the merger, if it had happened, they would essentially have half of that market. And so that's like a really significant change in market shares that would give these publishing houses significant market power. And what's the market power here?

It's the market power over authors. When authors are shopping around their manuscript to find a publisher that they like, that gives them good conditions. Again, that's what they do. They shop around and they make competition play. Who's giving me the best terms?

And once these publishing houses would have merged, that would remove an option for the authors to get a better deal for their books. And so, therefore, we predicted that they would get lower advances, and that would therefore damage competition in that market for the author's work. And this is the judge agreed with us. And so this is the first merger that was blocked primarily on a theory of labor market power, where those publishing houses would exercise power over the labor of the authors. In this specific case, is there a.

Joe Wiesenthal
You mentioned, okay, a company with 37% market share want to merge with a 12% market share, almost 50%. Is there a number in which this is too much? Does it vary by industry? Like, where is this threshold exist such that you could say, okay, this is an okay level of market power, or, this is too much? Right.

Ioana Marinescu
So that's in the merger guidelines. We have a famous, you know, this is nerdy. Nerdy, but we have the HHI. Exactly. The Hoffindel Hirschman index that essentially boils down to market shares.

So if the market shares in the market are generally high enough, you're going to have a market that's already. We call it highly concentrated. And then from there, if the merger is going to increase it sufficiently in this concentration, making the market even more concentrated with fewer players, then we think that it presumptively is going to cause an anti competitive effect. And this is something that you can calculate, and the thresholds are there in the merger guidelines. Wait, so speaking of calculations and nerding out, when it comes time to try to predict the effect of this type of consolidation on advances for authors and their proposed books, presumably, you go about actually modeling that in one way or another.

Tracy Alloway
How do you do something like that for publishing, which is kind of a notoriously opaque industry in many ways? That's right. So, you know, as I was saying, it's always very fact specific. And actually, one of the coolest things that I've learned by being at the division is just the very many different details of each industry that, you know, as an academic, you don't access this level of detail. You know, or imagine as a journalist, if you could get all the various emails and all these documents about what's really going on, it's really juicy.

Ioana Marinescu
But essentially, here, in this case, there's a process of bargaining and shopping around the manuscripts, and there's various ways how this could happen, but typically, it's some sort of auction like format. And so therefore, our expert in this case, we work with an outside economic expert who does some of the analysis. And so he modeled an auction style situation where those firms, now, instead of each bidding independently, would bid together and calculated, you know, the fact that it would likely result in a significant decrease in what the authors were going to be able to get for their books. You know, one thing in staying with the books example, but maybe it's not the best example. Another element of these fights is fights over the definition of what constitutes a market.

Joe Wiesenthal
And maybe in books, it's kind of clear. We're talking about books, and there's five big publishers. And so, okay, there's an advance and everything, but one could theoretically make the argument that the market is more than just five book publishers. And we live in an age of social media and writers maybe not doing a book, maybe doing a deal with Netflix and turning it into a documentary or other vehicles that are not precisely books, but that may be a vehicle for an author or a researcher or a writer to get there out. Where does the fight over what constitutes the market itself occur?

Or when does that occur? Well, you're really pointing the, you know, putting your finger here. You're putting your finger on a fundamental question in those antitrust cases, which is, what's the market? And importantly, it's not like there is the market. We have to show a relevant market based on how competition works.

Ioana Marinescu
And so here we define the market as this anticipated top selling books, 250k or more. But again, you could say, well, they could self publish, publish on Amazon. Right? And so that's where the critical question becomes, yes, but is this other way of publishing a reasonable substitute from the point of view of those authors? That's really a critical question that we go about asking.

And for that, we use a tool, again, very nerdy. It's called the hypothetical monopsonist test. And so what this asks is whether a hypothetical publishing house that would become a monopsonist, meaning that they would be the only publishing house, not five big five, the only one. Would they be able to impose a small but significant reduction in the advances that are paid to these authors. And if we find that that would likely happen, that means that the market is well defined.

And basically what that boils down to is authors just don't have other viable options, other equivalent options outside of this market. So you mentioned looking at various industries, and I can only imagine how interesting that must be with the amount of data, first person data that you get to see. But one thing I was wondering is, you know, you jump from sort of industry to industry. So I think in recent times, you've looked at publishing, which we just discussed. You've looked at nursing, you've looked at things like poultry processing and also video games.

Tracy Alloway
Can you maybe single out one of those that was most interesting to you or one where you've learned something new about how that particular industry worked? For sure. I think one of the coolest cases I've gotten to work on, and my kids got super excited about this because they played a lot of video games, concerned a video game tournament, the Overwatch League. So this is organized by Activision Blizzard. So that was a really cool case.

Ioana Marinescu
And what happened there is that it's really interesting. So they have professional video game players who get paid to pay, play video games. I'm sure that's the dream for some people. And so what was happening there is that they had a soft cap on workers salaries. So it was the case that each team could not pay more than a certain amount, or else the additional pay above that amount would get taxed away.

And so that meant that the teams had a strong incentive to keep the total pay to the whole team, you know, not go above the threshold. And so what we said, therefore, is that this is reducing competition for workers. Here the workers are video game players, professionals. They won't be able to get paid as much as they would get paid without this restriction. Right?

Because again, the teams are strongly disincentivized from increasing the wages above this cap. And what's really interesting is that there are similar rules in other leagues like the NBA and the NFL, but those rules are collectively bargained, whereas in video games there's no unionization. And so these rules were imposed without the workers, in this case the professional video game players, being able to have a say in the rules. And so to me, that case is really interesting, not only for the video game context, but also for the interesting consideration of what happens with collective bargaining, or here, the absence thereof. And therefore, our prediction that those rules are imposed on workers without their consent and are going to significantly diminish their.

Joe Wiesenthal
Pay major league baseball actually has an official legal exemption to antitrust law, doesn't it? Yes, and that's really important, because historically, one of the ways that the antitrust laws could be used is to bust the unions, because the workers agree with each other. Normally they should compete, but they agree. And so it was decided from a policy perspective that there would be an exemption for union bargaining, that the unions cannot be sued by the antitrust division for doing collective bargaining. And so that's why it's different.

Ioana Marinescu
If there is a union, is one thing. If there is no union, it's a different thing. And so in this case of the Overwatch league, the company agreed not to do this again to limit the workers pay, because, again, there was no agreement with the worker through bargaining, but instead it was just imposed on workers against their will and would likely reduce wages that the workers are being paid. This might be a very theoretical question, but we've obviously been talking about the impact of concentration on prices and labor. Are there other effects where you could see a sort of antitrust argument playing out, like other consequences on the economy that might be worth looking at for sure?

I think another aspect that we haven't touched upon as much, but is innovation. And innovation is really important. And one of the, in order to create new jobs and new businesses, we really need innovation to grow, and that innovation can be really thwarted by anticompetitive behavior by big actors who monopolize markets. And so, for example, we have filed a lawsuit against Apple as an example. And one of the arguments there is that Apple is preventing its users from switching to alternative smartphones.

And one of the ill effects of that is a reduction in innovation. So essentially, the big picture vision here, I just want to make clear, is that the anti competitive behavior decreases innovation. We're not saying that the company isn't innovating at all. It's more like if there was more competition, they'd be innovating more. So what does this mean intuitively, is if you're able to hold your audience captive as a company, it's very hard for the customer to move away from your product.

You just don't have the same incentive to make your product real good for the customer in order to keep them. Whereas if there's a lot of competition, well, there's always a risk of losing the customer. And now you're really incentivized to work hard to innovate so that the customer wants to stay with you rather than switching to somebody else.

As a leading real estate manager, principal asset management, harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced teams are uniquely positioned to uncover compelling opportunities in today's market, giving our clients an exclusive advantage. Principal asset management actively invested. Learn more@principalam.com Dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors, LLC.

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Learn more at american express.com businessgoldcard. Since you mentioned tech and apple and innovation, there's a line of thinking in economics which is that, like, maybe the way we do official economic statistics at the moment isn't necessarily the best at capturing the new economy, for lack of a better word, like maybe productivity. It's harder to measure productivity. Improvements in something like a video game or a phone or, I don't know, a refrigerator that now comes with a Bluetooth speaker or whatever. I'm curious if the same dynamic kind of exists in antitrust laws and enforcement.

Tracy Alloway
Does it feel to you like the current tools at your disposal are adequate to capture maybe some of the new antitrust challenges being thrown up up by a more modern economy? Right? So I think, you know, that's precisely why we created the or, you know, we worked together with the FTC to put out the 2023 merger guidelines. You know, we have taken to heart all of those new technological developments and, you know, new ways of looking at old problems. And so, for example, you know, I mentioned innovation as being one important consideration.

Ioana Marinescu
And in the merger guidelines, for example, we pay special attention to, to, let's say, acquisition of nascent competitors where a dominant player might be buying a smaller company that is very promising and might come to eat their lunch. And so we're really paying attention to that. And also with respect to labor, it's not all about wages, but we're also looking at things like working conditions, you know, how flexible the work is. Maybe special hybrid arrangements, right? Talk about technology that workers might really enjoy.

If there's less competition for workers, there's less incentive for firms to come up with creative ideas of organizing work in ways that will make people happy and productive at work. So I think the new merger guidelines have really learned from recent developments in technology and in the economics literature to look at a broader area of potential effects from anticompetitive behavior that isn't just limited to prices, which is usually the bread and butter. Of course we look at prices, but there's all these other aspects, like, as I said, wages, but also innovation and. The quality of jobs when it comes to innovation. And you brought up the Apple case.

Joe Wiesenthal
So on the one hand, you could say it's anti competitive from an innovation standpoint, because the frictions that they make make it hard for a user or a consumer to move from one type of smartphone to another. On the other hand, one could argue that actually it's good for innovation because if you pool a ton of users onto a single platform, then someone can build a product and have this huge, a wide swath of people that they can target, and that opens up anything. You mentioned big companies buying up small companies. Maybe that is anti competitive in one sense. But on the other hand, if small companies view an exit to a large company as a likely outcome and the alternative of an IPO, then maybe that funds the investment of more companies in the first place.

So I guess what I'm asking is, how do you actually measure, or is there a way to measure innovation? Or what are the tools you use to actually measure the effect of some corporate behavior of some deal on the amount of innovation? Which seems like kind of a hard thing to strictly quantify. It's very hard to quantify directly. And so that's why we are relying on, again, industry specific documents.

Ioana Marinescu
So, I mean, what you have to realize is like we're talking here in the abstract, but in concrete case, of course, we have like, yes, lots of information. So what are the things that come up in the course of a case that you're like, okay, this is useful data, or this is signal that can tell us something about the net effect on innovation that something in the tech space would have. So, like, for example, if we are looking at the concrete case and we are looking at, let's say, a dominant company and its practices is, we often see evidence on smaller competitors that, let's say there might be an anecdote where we know that they brought a new product and the product in question was very popular, but let's say the dominant firm made sure that the product cannot take off by imposing all sorts of restrictions. Because there's all sorts of ways. It's very industry specific, but there are ways, and that's what we're going after.

It's so called exclusionary practices. There are ways for the dominant companies to make sure that that new upstart cool product finds it hard to find a market. And so that's what we really want to have our eyes wide open toward, is to be able to detect those kinds of behaviors and if possible, curb it. Right? And again, extreme behavior would be to literally buy up that company that has the cool new product and maybe potentially do a killer acquisition, just kill that product so that it never comes to market.

So there's all sorts of things that companies can do, and we have to be very vigilant about all these strategies. And companies often say, oh, but we are so great, we're so innovative. And that's really missing the point because nobody said they're not innovative, the big players, it's more about how much innovation is lost through their anticompretative behavior. The point is we could have even better stuff, even better working conditions, even more innovation if there was more competition. So I just have one more question, and I've asked this before on conversation about antitrust, but I'm curious to get your perspective within the context of this administration is undertaking a number of policy measures.

Joe Wiesenthal
People call it industrial policy, for example, and in some case it involves just giving one company money or a few companies money. And in theory, that's a major advantage to them that, say, a competitor might not have. And so we're sort of at a time in which we are sort of, to some extent, picking winners or picking candidates who could be winners depending on how they execute. Can you talk a little bit, maybe philosophically or from your perspective, how you see antitrust enforcement fitting in with this sort of broader policy landscape in which the administration is not just sort of letting the invisible hand determine who's going to win and who's going to build what, but is actually shaping and guiding corporate behavior in multiple industries. So I think what I can best say about this is that we work to foster competition given other existing rules and constraints.

Ioana Marinescu
So we take the other stuff as given, and if there's rules out there, there's rules. We're not here to change legislation or anything like that. And we're looking at, hey, is there a competition problem within the existing rules? And we're going after that. So I think it's like just each tool in its own sort of domain of application.

There's many policy goals, and I don't want to comment about other policies outside us. What we do is given, again, what every other, I know, actually a good example of this in labor, again, is the union topic, right? So unions got an exception. We take that as a given. So we're not going to go after unions, you know, they, by legislation.

And that's really important in democracy. If the legislature decided to make the law a certain way, that's how it is, and we respect that. And then we're asking, given that, what other competition is there? And how might workers and consumers gain if we intervene in order to foster more competition that would lead to, again, lower prices, more innovation, higher wages, better quality jobs. So just on this note, Joe kind of reminded me, but going back to the supply chain issue and the experience of the pandemic, I think there is a realization that concentration can have negative consequences in terms of overall resiliency of the system.

Tracy Alloway
So if you have one supplier of something that is strategically important, and then there's, I don't know, a Covid outbreak in their factory or something like that, then you could have the entire supply of that good curtailed, basically. And the other thing that seems to have happened recently is there's more recognition of the cascade effects in the economy. So economists like Isabella Weber have been working on this idea of systemically important sources of inflation or where you could get higher prices in one particular good. That's a building block of a number of other things, and then that sort of flows through the entire economy. So I'm curious, as someone who does this at the DOJ, this is your job, your day to day, is supply chain resiliency kind of on your radar at all?

Is that something that you would be looking at as well? I mean, I think we, one way that this intersects with our bread and butter concerns is through entry. So we're always looking at, in order to predict whether, let's say, a merger is going to significantly affect competition in a negative way. So these two companies are merging, and is that going to increase prices? Is that going to reduce wages?

Ioana Marinescu
One key question is, once they merge, let's say they're trying to do something bad, like increase prices. Are they going to be able to do so? And one way that they would be limited in that is by entry from other companies strongly believe that this is a market that's very dynamic and there's a lot of entry, or on the opposite, it's a market that's not at all dynamic. There hasn't been a new company that entered for the past 20 years that factors into our reasoning. And I think this entry is related to some extent to this concern about resiliency, because you would think that an industry where it's very easy to enter, it's very flexible, you would have also less of that other concern around resiliency versus, and this is resiliency to monopoly, but it could potentially be resiliency to other things.

So again, I think that entry consideration is really important to look at the specifics of the industry in terms of economies of scale or other barriers to entry that could occur. Be there or not be there. And again, it really depends on the specifics of the industry. All right. Joanna Marinescu from the DOJ, thank you so much for coming on.

Tracy Alloway
All thoughts. That was absolutely fascinating. Thank you so much. Yeah. Thank you so much.

Joe Wiesenthal
That was great.

Tracy Alloway
Jo. I'm so glad we did that episode because I remember, I think maybe both with Lena Khan from the FTC and then Jonathan Cantor from the DOJ, both of which we have had on the podcast. At this point, I think we were asking them questions about their research process and identifying, you know, potential targets for lawsuits and things like that. It was really interesting to hear the economist's perspective on this. Totally.

Joe Wiesenthal
I like hearing about, like, all the different tools and forms and stuff like that. Right. Because one of the things that came up in some of our previous conversations is like, well, some of it's like anecdotal, right. Or some of it, you hear things and you say, oh, you read something in the paper and you're like, hmm, something seems kind of weird here, or people are complaining, but then hearing about, like, specific tools, the type of data that gets collected. What was it?

The win loss data. Yeah. And also that one form, I can't remember what it was called. Yeah. I have it up on my computer right now, the HSR form, the pre merger notification form that you have to fill out and that the onus is on the companies to sort of demonstrate preemptively that the merger is not going to worsen the competitive situation.

I like hearing, as you say, about all of these different tactics and techniques and tools to actually how these things get evaluated. Yeah. And Joanna was right that I would love to, as a journalist, I would love to see that kind of, you know what? I wish we could subpoena people. I think journalists should have subpoena power over corporate data.

I think that would only be fair. I guess we do have freedom of information requests, but it's not quite the same. Not to companies. The other thing I was thinking about, I know you keep asking this question to various antitrust people about the active industrial policy of the Biden administration versus questions over competition and things like that. And I think there is a tension there that I think is probably as yet unresolved yeah, I think so too.

I mean, it's interesting. Or maybe, you know, one way to view it, like there is this tension. The other argument I think one could make is the fact that the US is to some extent picking winners. Even further emphasizes the need to enforce antitrust and to, so that, you know, cause once you've been selected as a winner, a candidate winner, so they're actually still competing rather than basically rent seeking. So maybe, maybe they, maybe they go hand in glove more than I appreciate.

Tracy Alloway
Absolutely. Should we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway.

You can follow me racialoway. And I'm Joe Wiesenthal. You can follow me at the stalwart. Follow our guest Joanna Marinescu. She's Myoana.

Joe Wiesenthal
Follow our producers Kerman Rodriguez, Herman Ehrman, Albenet Dashbot, and Calebrooks at Kalebrook. Thank you to our producer, Moses Ondam. For more odd lots content, go to bloomberg.com oddlots, where we have transcripts, a blog, and a weekly newsletter comes out every Friday. And you can chat about all of these topics 24/7 in our Discord Discord GG Oddlot. And if you enjoy oddlots, if you like it when we do these antitrust episodes, then please leave us a positive review on your favorite podcast platform.

Tracy Alloway
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