Over the past two years, under the direction of Chair Lina Kahn, the Federal Trade Commission (FTC) loosened its standards for challenging mergers and acquisitions. The agency has stepped outside its usual role of consumer protection by targeting mergers and acquisitions that are not anticompetitive and interjecting itself into business deals where antitrust law is an ineffective or harmful tool. While new leadership at the FTC would be ideal, it should at least refocus its efforts on business decisions that cause harm to consumers.
Previously the FTC employed a consumer welfare standard that prioritized protecting consumers, but this has been replaced with a more subjective standard that no longer requires considering both the benefits and harms of a merger or acquisition. It has removed prior requirements that the FTC not burden legitimate business activities and to preserve free market principles from its strategic plan for 2022 through 2026 and its Rules of Practice. Under Lina Khan’s leadership, the FTC has unduly burdened legitimate businesses by ignoring free market principles, ultimately reducing choices for consumers.
For example, the FTC is attempting to block the biotechnology company Amgen from acquiring Horizon Therapeutics. The FTC argues that it may increase the cost of two medicines produced by Horizon. However, the acquisition also may reduce the prices of several other drugs.
The FTC’s involvement shows it does not understand the market it is trying to regulate. The root cause of high drug prices is not firm size, the problem is pharmacy benefits managers that are incentivized not to pass savings on to customers while choosing the highest priced drugs for consumers and abusable patent laws that slow the development of generic drugs. By inserting itself into problems it does not have the tools to address, the FTC’s actions are harming innovation and competition in the pharmaceutical market which will ultimately drive-up prices for consumers and give them fewer choices in the future.
It also took enforcement action against an investment by Altria in the e-cigarette company JUUL, deeming the move as anticompetitive even though Altria ceased producing e-cigarettes before it made the investment. Just as before the FTC shows a lack of understanding about the nature of the market it is attempting to regulate.
Problems in the market for vaping products don’t stem from anticompetitive business practices. The largest factor limiting competition and consumer choice within the vape product industry is the slow rate at which products are being approved by the Food and Drug Administration. This is thoroughly outside of the responsibilities given to the FTC, and limits investment in products that give smokers a less harmful option. Yet in recent years the FTC seems to think all decisions businesses make are antitrust issues. The FTC’s challenge was dismissed when Altria agreed to pull its investment, but the FTC is appealing the dismissal despite Altria conforming to the FTC’s demands.
The determination by the FTC that Altria acted anticompetitively was clearly wrong in the first place, given JUUL’s stock plummeted after the investment. By the time Altria sold their shares to comply with the FTC they had dropped in value from $12.8 billion to only $450 million.
The FTC’s challenge to Microsoft’s acquisition of Activision is another good example of harming consumers by stepping into deals that are not anticompetitive. The European Union, Japan, and most countries have approved this merger with the US and the UK being the only exceptions. The FTC is concerned that this merger will allow Microsoft to limit access to Activision games to its own console, despite Microsoft committing to keep the games in question available to competitors for a decade. However, ‘vertical’ mergers like this have historically not been blocked by the FTC because they don’t limit competition. Instead, these mergers tend to reduce costs of production and increase innovation and the quality of products available to consumers.
In all these cases the FTC was wrong in their judgement that the deals were anticompetitive, and it was also the wrong tool for addressing any real problems in those markets. The agency has extended its regulatory control beyond its usual role, to the detriment of consumers.
The FTC should renew its commitments to consumers by not burdening legitimate business activities with arbitrary and capricious challenges. It should limit its actions to mergers and acquisitions that can be shown to harm consumer interests. Hopefully future Chairs of the FTC will look at this period of governance as a useful set of examples of what not do.
This article was published in the Economic Standard.