Republicans and Democrats Want Big Government to Stop “Big Razor,” “Big Cereal,” “Big Pharma,” “Big Tech” – Do You See a Pattern Here?
by Ray Keating
The Keating Files – February 12, 2020
Wow, that was a close shave. But thank goodness that the Federal Trade Commission (FTC) has saved us all from the power and abuse of the razor monopoly. What would we do without government stepping in to stop “Big Razor” in its tracks? We can all rest easier while shaving each morning.
That’s right, the FTC sued to stop Edgewell Personal Care Co., maker of Schick razors, from buying razor rival Harry’s Inc. The deal was announced in May 2019. The FTC got around to opposing it early this month, and subsequently, the proposed purchase was cancelled by Edgewell.
What’s the deal? In general, this is another glaring example of stepped-up antitrust regulation based on bad economics, blind ideology and/or shortsighted politics.
On the shaving issue, the FTC decided to define the relevant market as the “wet shave market,” and asserted that it has been dominated by “two main suppliers.” The FTC’s decision was to simply ignore other kinds of razors that consumers use. Well, that’s convenient if one is looking for an excuse for government antitrust action.
Daniel Francis is the deputy director of the FTC’s Bureau of Competition. Yes, there’s a governmental entity called the “Bureau of Competition.” Anyway, Mr. Francis said, “Harry’s is a uniquely disruptive competitor in the wet shave market, and it has forced its rivals to offer lower prices, and more options, to consumers across the country. The Harry’s and Flamingo brands represent a significant and growing competitive threat to the two firms that have dominated the wet shaving market for decades. Edgewell’s effort to short-circuit competition by buying up its newer rival promises serious harm to consumers.”
Besides the ridiculously narrow market definition, there are all kinds of absurdities at work here. The most glaring is that these bureaucrats assert that consumers would be harmed. How? Well, that’s not clear. After all, the opportunities in the free market that were open to Harry’s being created in 2013 still exist for other potential competitors. Plus, the FTC bureaucrats fail to recognize efficiencies that might be gained through this kind of merger, thereby creating further savings for consumers.
No one should be surprised that the government’s Bureau of Competition doesn’t grasp how competition works.
This action by the FTC follows on others that are equally farcical. For example, in December 2019, the FTC announced that it was challenging Post Holdings, Inc.’s proposed acquisition of TreeHouse Foods, Inc.’s “private label ready-to-eat cereal business.” Private label products are made by one company and offered for sale by a different firm under its brand. The FTC argues for government action to stop a merger in a small portion of the breakfast foods market because, as stated by another FTC bureaucrat, it “would likely lead to higher prices and reduced quality of the store-brand cereals that consumers enjoy today.” Such notions again spring from failing to understand how markets work, including the realities of competitive dynamism and efficiency gains.
The Post-Treehouse merger was called off in January due to the FTC’s opposition.
Apparently, FTC bureaucrats are very concerned about morning activities – in terms of both shaving and eating cereal.
And then there’s the recent all-out political attacks against a variety of large tech firms. The FTC is looking for antitrust abuses by Amazon, Apple, Facebook, Alphabet (Google’s parent company), and Microsoft, including issuing an order this week for the companies to fork over information on small tech deals occurring over the past decade. Can you say “fishing expedition”?
The Justice Department, Congress and state attorneys general also are looking into the undertakings of large technology firms.
The problem with all of this is that it has everything to do with politics and vague laws, and little to do with actual economics. This has been the case since antitrust legislation was passed in the late 19thand early 20thcenturies. The Sherman Act (1890), the Clayton Act (1914), and the Federal Trade Commission Act (1914), in effect, granted the federal government the power to break up monopolies, prevent monopolies and cartels, and stop mergers that could substantially reduce competition. And this is all supposedly focused on protecting consumers.
Unfortunately, these laws are pretty vague, and assume that politicians and their appointees can figure out how industries operate, will develop and change; and what new ideas, products and services entrepreneurs will offer. Those are heady assumptions regarding petty politicians.
In reality, monopolies in private, competitive markets rarely, if ever, occur, and firms that do gain significant market share can only do so by better serving consumers. For good measure, even those businesses earning large market share must be aware of emerging and future competitors. That’s the economic reality of markets.
Given that antitrust regulation is directed at monopolies it’s critical to actually understand what a monopoly is. Properly understood, a monopoly means that a market is served by only one seller. Also, there must be no close substitutes for the product and high barriers to enter the market. Again, economics tells us that a true monopoly emerging from the competitive market is truly rare. Instead, monopolies occur when government acts to create, grant or protect a monopoly.
And rather than seeing current and future markets with near-perfect clarity, politicians and their appointees often ignore economics, the definition of a monopoly, and assorted market realities. After all, the antitrust legislation passed in the late 1800s and early 1900s emerged from complaints by competitors, not consumers (and that remains the case today), and from anti-big-business ideologies within both the Progressive and populist movements. Interestingly, in 2020, the same coalescence of Progressivism and populism has spurred the current re-energizing of government antitrust regulation.
Progressives via the Democratic Party never gave up on an anti-business agenda, including antitrust activism. Meanwhile, though he veers for and against large businesses on seemingly a day-to-day basis, President Trump’s populism often rails against large businesses when it fits his political agenda, or when he feels slighted.
Much of the rest of the Republican Party has followed Trump’s lead, including his own Justice Department and FTC. While Republicans generally had been far less enthralled with antitrust regulatory intrusions in the recent past – especially from Ronald Reagan to George W. Bush – that seems to have changed, with assorted GOP voices in Congress joining Trump in attacking large businesses.
This has been particularly the case with Republicans feeling frustrated by real and perceived anti-Republican biases lurking among various large technology firms. While anger among conservatives (including myself) is justified at assorted actions taken by some tech companies, in particular, Google, against conservative voices, the proper response is to encourage and create alternatives in the marketplace. However, various Republicans prefer tossing aside free market principles, and instead, embracing big government to do their bidding against certain businesses – doing the same thing that they used to criticize the Left for doing. Senator Josh Hawley, a populist Republican from Missouri, leads the way against “Big Tech,” ranting against social media, supporting price controls on prescription drugs, and looking to use big government to fight big business.
Golly, what could go wrong?
What’s most striking about Hawley is how this Republican falls in line with Democrats who fail to grasp the dynamism and staggering benefits of the market. He cannot see beyond a very narrow, biased view of a current moment in time, and apparently lacks the ability to understand that even the biggest of companies remains at the mercy of consumers, and therefore of competitors now and to come.
To drive home this point about the dynamism of the market, a few years ago, AEI scholar Mark Perry pointed out: “Comparing the Fortune 500 companies in 1955 to the Fortune 500 in 2014, there are only 61 companies that appear in both lists. In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile).”
Now we have both Democrats and Republicans basically saying, “Oh, don’t bother us with such inconvenient facts about how business and the market actually work.”
Yes, a quick study of economics and history would reveal such realities. But it’s hard for populist politicians, even one often labeled as an “intellectual,” as is the case with Hawley, to get by ideology and plain old politics to clearly view the lessons of economics and history.
For those craving bipartisanship today, well, here it is. Just look to assorted Republicans joining Democrats in an ideologically-driven anti-big-business crusade pushing for more big government antitrust regulation.
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Ray Keating is a columnist, an economist, a novelist (his latest novels are The Traitor: A Pastor Stephen Grant Novel, which is the 12thbook in the series, and the second edition of Root of All Evil? A Pastor Stephen Grant Novel with a new Author Introduction), a nonfiction author (among his recent works is Free Trade Rocks! 10 Points on International Trade Everyone Should Know), a podcaster, and an entrepreneur. The views expressed here are his own.
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