Despite being an integral part of modern life, over a third of Americans support breaking up tech companies such as Amazon, Google, and Microsoft. Moreover, public disapproval of the firms, known as techlash, is propelling legislative efforts that could limit many of the consumer benefits that these companies offer.
One legislative reaction to techlash is the Prohibiting Anticompetitive Mergers Act (PAMA) introduced by Rep. Mondaire Jones (D-NY). Jones, and his 11 Democratic co-sponsors, believe that this bill would “empower workers, raise wages, reduce prices, combat inequality, and enable small businesses to thrive.” Despite Jones’ belief, this bill would limit not only big tech, but other firms’ ability to compete and serve their consumers.
PAMA is just one of many attempts to change antitrust law and shift its focus away from competition and consumer impact. If passed, PAMA would ban mergers deemed too big, expand the basis for rejecting a merger beyond market competitiveness, and place substantial constraints on a firm’s ability to appeal a decision.
Since the 1970s, the Consumer Welfare Standard (CWS) has guided federal courts in determining whether mergers or acquisitions are permissible. The CWS permits mergers and acquisitions so long as they benefit consumers, mainly through increased output and lower prices.
PAMA would turn away from the CWS and focus on size of the business rather than the likely outcomes to determine whether certain behaviors are illegal. This bill goes as far as to argue that the CWS is “misguided and narrowly defined.” However, shifting the focus away from the consumer toward size codifies ‘big is bad’ and makes it difficult for businesses to achieve the economies of scale needed for consumer benefits such as faster delivery, wider selection, and lower consumer prices.
PAMA outlaws mergers in which the Herfindahl-Hirschman Index (HHI), which measures market concentration, “would be greater than 1,800 in any relevant market” or “the increase in the Herfindahl-Hirschman Index would be more than 100 in such relevant market.” In effect, PAMA assumes that a hair salon company and jumbo jet manufacturers have the same economies of scale. Think about how expensive automobiles would be if we had hundreds of very small automobile manufacturers, or how poor consumers would be as a result.
According to the Department of Justice, markets can have an index score of 2,500 before regulators consider a market highly concentrated. However, even this threshold is relatively low and ignores the reality that concentration can bring consumer benefits.
According to the Brookings Institute, as of 2012, only one of the six industries measured would fall below the 1,800 mark. However, the most concentrated industry, manufacturing, far surpassed this measure with an HHI above 8,000. This bill would change those guidelines and automatically ban mergers at the newly lowered threshold.
When Disney wanted to acquire segments of Fox Entertainment, including National Geographic, the Attorney General issued a complaint stating that the deal would raise the HHI above 2,500. However, Disney’s ownership of brands such as Fox Entertainment has allowed its streaming network, Disney+, to showcase a wide range of entertainment, including shows from National Geographic.
The bill additionally expands influence for antitrust decisions beyond the Federal Trade Commission and the Department of Justice by allowing other agencies to object to an acquisition “because the acquisition would materially harm” their special interest groups.
None of the agencies listed in the bill focus on market competition and therefore lack the expertise to involve themselves in such important and complex matters. In fact, many of the agencies could potentially stand in direct opposition to competition that better serves the consumer.
The Office of Advocacy of the Small Business Administration is one of the agencies the bill lists, and it is no secret that companies like Amazon have been accused of competing against small businesses. However, Amazon has evolved and currently provides a platform for almost 2 million small and medium businesses who sell on its global marketplace, but this took time. This bill would not only stand to harm businesses who best serve the consumer but could potentially block market evolutions and innovations that benefit small competitors and consumers alike. Codifying ‘big is bad’ through legislation like PAMA goes far beyond limiting anticompetitive mergers and instills a blanket ban on some mergers while severely limiting others. If mergers—such as the ones that allowed Disney to stream shows from National Geographic, Facebook the ability to integrate with Instagram, and Android the ability to compete against Apple—are banned, then consumers are the ones who stand to lose.
This was published in The Economic Standard.