Late on Tuesday, a judge sided with AT&T and Time Warner, ruling that the proposed marriage between the two corporate behemoths can go forward with nary a hitch. President Donald Trump’s Department of Justice had tried to intervene, suing to stop the union from being consecrated without any conditions. But Judge Richard J. Leon of the U.S. District Court for the District of Columbia gave the megamerger his blessing, concluding that because it won’t harm competition, the companies don’t need to make any concessions to seal the deal.
The Trump administration’s motives for blocking this merger were always a bit fishy, especially after it quickly approved the tie-up between Whole Foods and Amazon last year and has generally taken a very friendly stance toward business. It seemed that Trump was motivated by his loathing of CNN, which is owned by Time Warner. “As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few,” he said when the deal was announced in 2016.
Motivations aside, the instinct to block this huge merger was the right one. The problem is that our antitrust regulatory regime, which is supposed to keep corporate consolidation in check so that monopolies don’t dominate the economy, has been so weakened over the past four decades that it can’t grapple with today’s economic reality. Thanks to a zealous focus on consumer prices and nothing else, judges and regulators nearly always approve deals like this one — vertical integration, in which two companies offering different products or services combine into one megacorporation. But mergers like this one will have plenty of pernicious side effects that can sicken the U.S. economy.
In 1914, when the federal government was eager to bust trusts and break up monopolies, Congress passed the Clayton Act to strengthen antitrust laws. That law still forms the basis of our policy, and although Leon mentioned the Clayton Act in his opinion, he seems to have neglected an important part. The act bans mergers that “substantially … lessen competition” or “create a monopoly.” It doesn’t draw any distinction between horizontal deals (when two direct competitors decide to become one) and vertical ones (when they inhabit different realms) like AT&T and Time Warner’s. Nor does it specify that courts and regulators focus only on the impact such deals could have on consumer prices without concern for any other ill effects.
It’s not that Leon went rogue, though. Since 1978, when Judge Robert Bork — yes, that Robert Bork, whose 1987 nomination to the Supreme Court went down in flames — published The Antitrust Paradox, judges and regulators have basically neglected this broad mandate in the Clayton Act. He argued that vertical deals are typically beneficial and that the primary focus of antitrust law should be to protect consumers from higher prices. Otherwise, he said, mergers should move forward. Courts and regulators essentially adopted his view.
Since that time, corporate consolidation has been unleashed, and it has only grown in intensity in recent years. Signs of increased consolidation can be found in nearly every industry since the 1980s and 1990s. Exxon and Mobil were once two separate companies, as were JP Morgan and Chase. More than 500,000 mergers were inked over the last 11 years, and merger filings increased 58 percent from 2010 to 2016.
It has also become evident that corporate consolidation comes with plenty of other dangerous effects besides increased prices (which, it should be noted, is also happening, as companies have marked up prices significantly since 1980). A huge new body of research has documented what is called monopsony power — a single or dominant buyer’s power, such as big consolidated employers’ ability to keep workers’ wages and benefits low. When there are limited job options because there are so few employers to choose from, workers have little choice but to accept whatever wages are on offer. Each time companies merge, another distinct employer disappears. And yet antitrust regulators like the Department of Justice and the Federal Trade Commission, as well as judges like Leon, have never tried to block a deal on the grounds that workers might suffer with fewer job options.
There’s also the impact on suppliers. In the case of Whole Foods and Amazon, the company — notorious for undercutting suppliers’ prices — is already hurting some of the brands that typically sell to the organic grocery chain. Behemoths like Amazon and Walmart are so influential and hold so much sway over their suppliers and contractors because they are often the only buyer on offer. Their demands for lower prices are also keeping workers’ wages down at these seemingly unconnected businesses. Big, powerful companies can strike better deals with suppliers, deals that smaller and newer competitors can’t beat.
And then there are the effects that such enormous companies can have on our democracy. Luigi Zingales, a finance professor at the University of Chicago’s Booth School of Business, argues in a working paper that the more market power companies gobble up, the more political power they accrue. “Market concentration can easily lead to a ‘Medici vicious circle,’ where money is used to get political power and political power is used to make money,” he writes. And the rest of us, because we can’t throw around that kind of cash, get drowned out.
The danger of Leon’s decision lies not only in allowing the specific deal between AT&T and Time Warner, although that is cause for concern. After the merger, the economy will lose one big employer, and smaller businesses will be staring down an even larger entity. The telecommunications industry is already highly concentrated — with, for example, just four major wireless carriers — making it tough for any startups to elbow their way in. As the Department of Justice argued, there’s also the potential for the merged company to charge other distributors higher prices for its content, like its HBO programs. That cost could get passed on to the rest of us, hurting consumers after all.
More dangerous than all these considerations is the likelihood that this decision has pried the floodgates wide open for vertical mergers and all manner of other deals. Leon attempted to clarify that his decision shouldn’t be seen as a broad stamp of approval, but companies that had been holding off on announcing deals for fear they could be struck down are breathing sighs of relief in the telecommunications industry and elsewhere. Comcast is expected to make a formal bid for Twentieth Century Fox as early as this week.
Corporate dealmaking was already riding high before this decision, but the big merger bonanza, it seems, was only getting started. Someone’s going to need to stand up against industry concentration — and soon.
Bryce Covert is an independent journalist writing about the economy. She is a contributing op-ed writer at The New York Times and a contributing writer at The Nation.