Federal Trade Commission member Alvaro M. Bedoya said Thursday that antitrust enforcement has been too concerned with how efficient companies are and needs to do more to promote fairness in the economy, especially for small businesses and rural America.
Speaking at the Midwest Forum on Fair Markets in Minnesota, Bedoya, a Democrat, said that when Congress passed the antitrust laws, including the Sherman Act in 1890, lawmakers were looking to make things more fair for small businesses and did not discuss improving efficiency as a goal of the statutes.
"Five times in 60 years, Congress passed antitrust laws that in letter or spirit demanded fairness for small business, often rural small business," Bedoya said, according to prepared remarks. "Yet today, it is axiomatic that antitrust does not protect small business. And that the lodestar of antitrust is not fairness but efficiency."
Bedoya noted that the antitrust statutes do not use the term "efficiency" and said the FTC is charged with "stopping unfair methods of competition, and not inefficient ones," contending that enforcers should not allow a principle Congress never wrote into law override a core feature of the laws.
"I think it is time to return to fairness," he said during the forum, which was hosted by the Institute for Local Self-Reliance and the Open Markets Institute.
As an example of how this focus on efficiency has affected rural communities, Bedoya told the story of a West Virginia family whose insurance company initially refused to let a pharmacy dispense a cancer drug for their child. He said they were told they needed to wait up to two weeks for the insurance company's pharmacy benefits manager, or PBM, to send the medicine through its mail order specialty pharmacy.
Bedoya contended that this happened because of consolidation in the industry, saying there used to be 39 companies between pharmacies, PBMs and insurers, which help decide what medicine most people get when they fill a prescription, how they get it and the price. But those companies have now merged into just three vertically integrated outfits, he said, meaning it's in each of their interest to make sure prescriptions are filled at their own pharmacies.
"Even, apparently, when it is cancer medicine," Bedoya said, "and even, apparently, when doing that will force a child to wait for two weeks."
Enforcers allowed this consolidation to happen, he said, in part because of a prevailing notion that took over at the enforcement agencies in the 1970s and 1980s that most mergers, and especially so-called vertical deals that combine companies at different points in the supply chain, are generally good for the economy and good for consumers.
"There are certainly many factors in merger analysis. But it is inescapable that this presumption of efficiency significantly contributed to making 39 separate companies into the three vertically integrated firms that exist today," he said.
He also talked about consolidation in agricultural industries and its effect on farmers, who he said "are going out of business by the thousands." Bedoya said that four companies dominate the sale of fertilizer, seeds, grain and meatpacking services, and that many farmers have only one choice in their region.
He said the limited number of meatpackers in particular can have a dramatic effect, saying a farmer told him about how he had to "gas" a warehouse full of cattle when the only processing plant accessible to him was shut down because of COVID-19.
"But maybe the most shocking thing was how scared they were that something they said would somehow get back to their suppliers or their purchasers and that they would pay for it," Bedoya said.
Consolidation has also affected independent grocers, Bedoya said, contending that manufacturers offer big-box stores better package sizes and prices than they do smaller retailers, even when those retailers use wholesalers to bundle their orders. He also said manufacturers have cut supplies to smaller retailers and wholesalers during the pandemic.
He argued that the Robinson-Patman Act, on the books since 1936, prohibits many of these practices since it "bans unfair practices like secret discounts and secret rebates, available only to the large and powerful." But he said that law hasn't been enforced since the 1980s, when the agencies decided it protected inefficient small businesses and raised prices.
"Those claims are unproven or incorrect," Bedoya said. "To my knowledge, some 86 years after its passage, there is not one empirical analysis showing that Robinson-Patman actually raised consumer prices."
FTC Chair Lina Khan has also said the commission needs to look into enforcing the statute, he said, and a policy statement from the agency earlier this year warned drug companies and PBMs that enforcers are looking to go after rebates and other pricing schemes under Robinson-Patman.
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