January 3, 2019

Antitrust: “One Vast and Ecumenical Holding Company. . .”

Happy New Year everybody – and thanks for reading. I recently watched the 1976 film “Network” again, and like many others, I was struck by how prescient it was. For instance, I was reminded of the movie when I read this article in last Friday’s WSJ – which talks about antitrust regulators’ increasing concerns about mega-M&A deals creating “monopsony power” through the sheer scale of the companies involved.

As this excerpt explains, these rising concerns about monopsonies may result in a significant shift in the way regulators both in the US & abroad approach merger review when it comes to mega-deals:

Regulators are increasingly focusing on the power that these companies have over their workers and suppliers, and companies appear to be aware of the risk. This helps explain big wage increases this year by Walmart and Amazon, which boosted its minimum hourly rate to $15, following criticism that the retail giants use their scale to give staff a raw deal.

Both the Justice Department and the Federal Trade Commission are now looking more at labor issues in merger cases, according to David Wales, antitrust partner at Skadden, Arps, Slate, Meagher & Flom in Washington, D.C. “It has come up in a couple of pending investigations where the staff has asked the parties to answer questions about the impact of the merger on labor,” Mr. Wales said, adding this is the first time he’s seen this happen.

The main concern in antitrust cases has long been the impact of a deal on consumers. If there’s not evidence suggesting that prices will rise, then there typically hasn’t been much regulatory concern. In other words, the focus has been on the impact of a dominant seller (monopoly) and not a dominant buyer (monopsony).

But the size of today’s mega-corporations has resulted in growing concerns about monopsony power. Some have derided this new approach as “hipster antitrust,” but the article says that it is “a leading theme of the Federal Trade Commission’s current hearings on whether antitrust practice is working.” It also points out that hearings like these are rare – they last were held back in the mid-1990s.

Now, this is where Network comes in – because as Ned Beatty’s character Arthur Jensen so eloquently argued, one person’s monopsony is another’s beneficent “vast ecumenical holding company”:

“The world is a business, Mr Beale. It has been since man crawled out of the slime. And our children will live, Mr. Beale, to see that … perfect … world in which there is no war nor famine, oppression or brutality. One vast and ecumenical holding company for whom all men will work to serve a common profit. In which all men will hold a share of stock. All necessities provided. All anxieties tranquilized. All boredom amused.”

Well, that’s one point of view. Anyway, here’s a pro tip: if you get caught up in merger review based on concerns about monopsony power, quoting Arthur Jensen to the DOJ or FTC is not likely your best play.

John Jenkins