In Lake Wobegon, All Antitrust Enforcers Are Above Average
Was allowing Live Nation to buy Ticketmaster 'tough' enforcement? According to big law, yes.
In radio host and author Garrison Keillor’s famous radio show, A Prairie Home Companion, the fictional town of Lake Wobegon is a quaint pastoral spot on the edge of the prairie in Minnesota. A satire of small town midwestern Americana, the ‘news from Lake Wobegon’ is filled with comical German-American names, iconic places like the Chatterbox Café and the Sidetrack Tap, “Norwegian bachelor farmers," and sports teams named the Whippets. It is, goes the famous saying, “the little town that time forgot and the decades cannot improve ... where all the women are strong, all the men are good-looking, and all the children are above average.”
Keillor’s radio show aired from 1974-2016, and Lake Wobegon became so ingrained in American culture that it gave rise to the term ‘The Lake Wobegon effect,’ which means a need for everyone to believe they are above average.
Nowhere is the Lake Wobegon effect so pronounced as it is with the old guard of the antitrust world. In the early 1980s, Reagan’s antitrust chief Bill Baxter was honest about what he was trying to do, which is to say, dramatically relax merger law. But since Baxter, a certain false bravado overtook that world. Most enforcers and antitrust thinkers were persuaded by Bork that promoting efficiency rather than reducing corporate power was the point of the law, thus facilitating a host of mergers, allowing the roll-up of hundreds of industries, everything from hospitals to pharmaceutical firms to ticketing.
Even as enforcers allowed corporate America to consolidate, it did not mean they were inattentive or lax, or so many of them told themselves. Allowing Live Nation-Ticketmaster had to be done, so some of them claimed, because judges would never have allowed it to be blocked. And Congress wouldn’t grant enough resources. And the law got worse. And so on and so forth. The antitrust world, shorn of its original purpose, withdrew into technocracy, and as with Lake Wobegon, soon all the women were strong, all the men were good-looking, and all the antitrust enforcers were above average.
Then came the modern anti-monopoly movement, first with a whisper at the end of the Obama era, and then gradually with a roar. Led by FTC Chair Lina Khan and Antitrust chief Jonathan Kanter, the new school promoted a different ideological framework. Khan and Kanter are far more assertive than the traditional antitrust cops. You can turn on CNBC and there’s a reasonable chance you’ll hear complaints about them. The Wall Street Journal editorial page has written roughly 100 hit pieces on Lina Khan, top mergers and acquisitions lawyers have called for Jonathan Kanter to be fired, and investment bankers like Roger Altman are specifically saying antitrust is slowing them down.
The old guard is split on the new movement. Many of them, at first skeptical, have embraced the new frameworks, because what the new enforcers are trying isn’t that different from what they themselves thought privately, and they see that the political winds, something no one controls, are all that’s different. But others, like the so-called ‘Dean of the Antitrust’ Bar, Herb Hovenkamp, take the new movement very personally, as I noted last year in my description of the American Bar Association Antitrust Section, the Rage of the Corporate Lawyer.
And yet, critics must work through an inconsistency. How do they square the thesis that the old guard was very aggressive with the critique that the new guard is too aggressive? The answer, as it turns out, is to play a trick with language. Here’s how it works. While most big law firms and tech funded groups regularly send off alerts on how devastating antitrust enforcement is these days, a few of them periodically make the opposite case, sounding off about statistics showing the Biden antitrust enforcers are actually too weak. A few months ago, for instance, it was Ryan Quillian of Covington and Burling announcing that they had done an analysis, and found a “Historically Low Number of Merger Enforcement Actions.” Here’s Quillian’s chart:
That sure looks terrible, right? Then there’s this chart, from big tech lobbyist Diana Moss at the Progressive Policy Institute, who recently published a report discussing how the Biden administration has a relatively low rate of merger challenges compared to previous administrations. The lighter blue bar represents ‘challenges,’ which are not as high as they used to be.
Wow, another bad one. How awful Khan and Kanter must be, if you care about changing antitrust enforcement! And these stats are used by everyone from House GOP leader Jim Jordan to former FTC Commissioner Christine Wilson in an attempt to discredit the new regime. But this thesis doesn’t make sense. CNBC’s Jim Cramer wouldn’t badmouth antitrust enforcers who are feeble, he would ignore them, as they wouldn’t be relevant to his audience. But he’s regularly going at both Khan and Kanter. In other words, the claim that they are weak is akin to the old Yiddish joke about a restaurant, “the food at this place is terrible, and it has such small portions.”
Yet, those statistics aren’t made up. So what’s going on? The answer is that the use of these stats is mostly deceptive. These reports all use something called a ‘merger challenge’ as their baseline for comparison, drawn from a series of FTC annual reports. While there are lots of different tools in the antitrust enforcement arsenal, the bedrock job everyone has to deal with is mergers. Firms tell the agencies they want to do a merger, and agencies must decide to litigate, or not. It’s like a pitcher throwing constantly, with enforcers as the batters. They may or may not swing, but the pitches keep coming. So like a batting average, just add up how many merger challenges each administration undertook, and voila, there you go, that’s a reasonable comparison to measure ‘toughness.’
Now here’s where the trick comes in. Normal human beings would read that a ‘merger challenge’ would mean that an enforcer is trying to, well, challenge a merger. But that’s not what a merger challenge means to an antitrust lawyer, because antitrust lawyers love making up words that mean other than what they sound like. Instead, when an antitrust lawyer says ‘merger challenge,’ what they mean is just whether an agency did some paperwork by filing a complaint to a court about a merger.
A complaint can certainly be a step in stopping a merger. But it can also be a feint to pretend to challenge a merger. In order to allow a deal through with a meaningless concession, an agency files a complaint with the court at the same time as the settlement goes through. According to the agency annual reports, the act of filing a complaint counts as a merger challenge, even if the agency lets the merger go through. No, this doesn’t make sense, but antitrust law is often illogical and dumb. In fact, many of the big ugly mergers we think of as bad count as merger challenges, because there was some irrelevant concession that required the paperwork that counts as a merger challenge.
For instance, in 2010, the Department of Justice allowed Live Nation to buy Ticketmaster, which most of us see as a failure. But because Live Nation agreed to spin off a software subsidiary (which promptly failed), it is known as a merger challenge. When the Trump Department of Justice actually lobbied *for* T-Mobile to buy Sprint, because there was a side deal with DISH (which promptly fell apart), that behavior was considered a merger challenge. Same with Thrifty-Hertz Global, Safeway-Albertsons, Google-ITA, and many other awful mergers the authorities waved through. They are all considered *challenges.* For the antitrust old guard in Lake Wobegon, most of the deals they examine in depth are merger challenges.
And that’s why the stats look the way they look. When the FTC under Khan actually went to trial to stop a trillion dollar firm like Microsoft from buying the $100B game publisher Activision, and went through a slug-fest for years, well that’s just one little ole merger challenge. When Gene Kimmelman in the first term of the Obama administration allowed Live Nation-Ticketmaster to go through, that’s also just one little ole merger challenge. Same with the Antitrust Division’s attempt to stop UnitedHealth Group - the $300B monster - from buying Change Health, vs the Trump administration allowing T-Mobile to buy Sprint. All merger challenges, all counted the same. Does that make sense? No, but it explains why some of the opponents of the existing antitrust regime make the claim that the litigation efforts are weak.
Khan and Kanter have tried to explain how they approach the work, with Khan discussing how many mergers have been abandoned on her watch, and Kanter talking about how “fewer anticompetitive deals are making it out of boardrooms in the first place” because of enforcers “providing clear guidance and backing it up with a willingness to litigate to stop violations of the law.” That, he says, is “progress.” True. And it is hard to measure deterrence, which won’t show up as merger challenges when a deal just never got past the consideration stage over fear of regulators. It’s also hard to measure just how many bad mergers were invited by enforcer desire to settle cases instead of fighting.
But there are ways to measure how Biden enforcers are different. I’ve compiled a slightly different set of metrics. It starts with a simple question. How often is an enforcer willing take a merger to trial? This question is important, because the answer indicates whether an official is willing to risk losing in court in full view of the public. And it’s also a question of whether there’s a commitment to actually challenging mergers that corporate America will fight for. Trials are also important in of themselves, even when enforcers lose, because it is a full public accounting of an industry in a detailed manner we almost never see. (The phrase ‘the trial is the remedy’ is often bandied about, and it’s somewhat true. Another concept that comes to mind in terms of enforcers who only want to take surefire winning cases is The Chickenshit Club.) When you look at the number of merger trials, as opposed to challenges, the numbers show Khan and Kanter are at the high end of enforcement vs Trump and Obama. It’s not a crazy jump, but it’s a jump.
If you look at it slightly differently, the jump becomes more obvious. Here’s the average number of merger trials a year, and you can see that Biden outpaces Trump and Obama significantly. I’ve divided up the Obama era into the first and second terms, and as you’ll see, the second term enforcers were much stronger.
Still, these stats are skewed in lots of ways. Sometimes parties just abandon, so you can’t go to trial, even if you were willing to do so. It also doesn’t really look at political power. Taking a small firm to trial is easier than a big one, but both would count as a trial. There’s also a bureaucratic policy lag at work. It takes about a year to build a case, which means that the first year of a new administration is really just about bringing cases the previous administration prepared. Finally, just looking at mergers excludes all the other areas of activity, such as criminal price-fixing, consumer protection, monopolization trials, and so forth. But it is a sort of acid test. Are you willing to risk being embarrassed in public in order to follow through on your principles? And I think that’s a good way to recognize assertiveness.
The final metric I’d use is a loose proximity to willingness to take on politically difficult targets. Just by eyeballing the trials, it seems pretty clear that the more recent trials under Biden are bigger and have more politically powerful targets than those under previous administrations. For instance, the DOJ’s second merger trial under Obama was in 2013, and it was U.S. v. Bazaarvoice, Inc, a merger of medium sized firms that made software for rating and reviewing products. Trump’s people went after mid-tier deals like Wilhelmsen Maritime Services/Drew Marine, a marine water treatment chemical combination. There were some biggies, the second-term Obama enforcers went to court to block a massive health insurance roll-up not just once, but twice, to stop the mergers of both Anthem/Cigna and Aetna/Humana in 2016. And Trump courageously sought to stop AT&T from buying Time Warner for $85 billion.
Biden enforcers, however, are in a different league. They have gone after trillion dollar firms, like Microsoft and Meta, as well as politically powerful corporations like American Airlines, Booz Allen, JetBlue, Illumina, Simon and Schuster, and UnitedHealth Group.
Indeed, the size of a deal is probably the most reasonable metric to figure out how politically difficult a challenge truly is, since bigger firms have more money and more political connections, and litigating against a big acquisition is riskier. So here’s a chart of the number of merger trials where the acquisition target was over a billion dollars. And here the stats tell a real story about the change in policy, with Biden enforcers being more than four times as likely to be challenging a multi-billion dollar acquisition when they go to trial.
Breaking this out into first and second Obama terms shows how flaccid antitrust enforcement was under Obama’s first Antitrust AAG Christine Varney during the financial crisis, and how much stronger it became under her successor Bill Baer in the second term. Khan and Kanter still stand out, but it’s not quite as dramatic.
Finally, the chart below is the percentage of billion dollar merger trials as a percentage of all merger trials. Obama’s enforcers were at 27%, Trump’s were at 20%, and Biden’s are at 58%.
Breaking it out into first and second Obama terms tells the same story, but with more credit to second term enforcers. One again, the ranking from weakest to strongest in terms of being willing to challenge the big guys is Obama 1, Trump, Obama 2, and then Biden.
In other words, even when you eliminate all of the extra work the Biden enforcers are doing outside of mergers, such as the multiple monopolization suits, the revolution in privacy regulations, and the non-compete prohibition, the comparison is stark. I am not trying to be critical of previous enforcers, many of them are brilliant and capable people. It was a different political and legal climate, and the choices of those enforcers would likely be different today. It’s also clear that the second Obama term did see a meaningful uptick. But there is a difference today, whether that’s a result of environment or litigation choices, or both. Just in merger trials, Biden’s people are doing more trials and they are big game hunters. They don’t always win, and sometimes they lose big. There are legitimate criticisms insofar as they have to find a way to do a lot more. But they are, one might say, above average.
Great to see yet another graphically lush but short counterpunch nestled in such an instantly recognizable meme-world as Lake Wobegon- this is why your articles are so transferable to other publication formats. I dare the New York Times, or the Washington Post to print this on their weekend editorial pages!
The older I get and the more I see various leaders standing around "with their dicks in their hands" as my late uncle would say, the more I admire anyone who actually tries to attack a problem. If you try a solution and it fails, well that is just valuable information you can use when you brainstorm another solution.
This thing with Seattle and the food delivery people is a prime example. Already the "free market" crowd (lol) is declaring the law a huge bust. I think it's too early to say that, but if the law has some unintended consequences, amend it. Good on Seattle leaders for trying to find a solution, and let's not act like everyone was happy with the way things were before. It's also been interesting to see all these tech companies put other companies out of business by burning through cash, but nobody seemed to care about that being unfair.