December 19, 2023
The Center for Economic and Policy Research applauds the Department of Justice and the Federal Trade Commission for the Merger Guidelines it released yesterday. The guidelines provide a clear roadmap to antitrust agencies and courts to prevent further industry consolidation in markets already dominated by a few large firms. They address the twenty-first-century problem of “stealth” consolidation, where a firm engages in the serial acquisition of companies too small to come to the attention of antitrust regulators, then “rolls them up” into a much larger company that dominates a regional market — sometimes even national — for its products or services. The guidelines will move the economy in a fairer and more just direction, facilitating a more equal distribution of the fruits of a productive and growing economy.
The last 40 years of lax antitrust enforcement have resulted in an economic system in which many industries are highly concentrated and a few large firms dominate local and/or national markets for particular goods and services. In the past, antitrust agencies were too easily persuaded to approve anticompetitive mergers by promises that the merger would lead to greater efficiency and lower costs — and lower prices to consumers. If there were cost savings, they were pocketed by the merged company. With greater dominance in the markets for its products or services, the company was more likely to raise prices than reduce them.
Fewer companies in local labor markets constrict workers’ employment opportunities. A lack of alternative places of employment weakens the bargaining power of workers and holds down wage growth. Similarly, these dominant firms are able to pay artificially low prices to their suppliers and vendors. Many of these smaller companies have been driven out of business or become easy targets for acquisition by the very firms responsible for weakening their financial position. As pay stagnated for the large majority of workers, profits rose and the rich got richer. Incomes soared for the top 1% and top 5%. This is a feature of an economy with few limits on anticompetitive behavior.
As incomes at the top increased, so did the political and social clout of the very wealthy. They could donate freely to political campaigns and could set loose an army of lobbyists to protect their parochial interests and positions of power. The new Merger Guidelines will disrupt this corrupt political pipeline.
The Guidelines will be particularly useful in health care, where the government pays for more than half of all spending. With no limits on anticompetitive behavior, government funding is like catnip to powerful financial interests. Private equity firms buy up doctors’ practices, hospice agencies, rural hospitals, and autism treatment centers, roll them up into dominant players in the markets they serve, then skimp on care to maximize profits. Large insurance companies that grew through horizontal and vertical mergers now manage the health of seniors through Medicare Advantage plans. They are subject to the market mandate to maximize profits and free of the constraints of the Hippocratic oath and have a strong incentive to deny patients care that they need and are entitled to if it is expensive. Too much of health care today is driven by the logic of profit maximization and not by the best interests of patients. The publication of the proposed guidelines has already disrupted plans for further consolidation in health care. Now that the new Merger Guidelines have been adopted, we can expect that they will crimp further consolidation that is unhealthy for the economy.
