The director of the Federal Trade Commission’s bureau of competition has said the agency will examine the issue of buyer-side power in labour markets, including where such power derives from a merger. Pallavi Guniganti at GCR Live New York
Bruce Hoffman commented yesterday on the need for the FTC to reconsider its traditional assumption that any monopsony problem would be solved by remedies crafted to deal with an increase in market power for sellers. His comments came as the closing speaker at GCR Live New York.
While Hoffman disclaimed speaking on behalf of the commission or any commissioner, FTC chairman Joseph Simons already suggested action in this area when answering questions from the Senate during his confirmation process earlier this year.
Simons wrote: “Significant concerns have been raised that the federal antitrust agencies have been too permissive in dealing with mergers and acquisitions, resulting in harm to consumer welfare via increased prices, limited consumer choice, and harm to workers. Addressing these harms is critical, as they lie at the heart of the agency’s competition mission.”
The Department of Justice’s antitrust division claimed in 2016 that the merger of health insurers Anthem and Cigna would give them a monopsony when purchasing healthcare services for insurance beneficiaries. However, the agency also alleged a loss of competition in the market for the sale of insurance, and neither the federal district court nor the appeals court relied on the monopsony argument in blocking the deal.
In conversation with Arnold & Porter Kaye Scholer partner Debbie Feinstein – who was his predecessor as bureau director – Hoffman yesterday praised the “robust public debate” on the fundamentals of antitrust policy that has arisen in the past few years.
Some conservatives have mocked the type of thinking that draws on antitrust’s Progressive Era origins as “hipster antitrust”. But Hoffman said he and the current FTC commissioners believe it is healthy to be challenged, although he generally does not deem antitrust to be “a device to protect the interests that are protected by labour laws”.
“Having said that, I think it would be fair to say, we don’t as a general matter look at, in the first instance, labour monopsony issues as sort of a core question” when reviewing a merger in depth, Hoffman said. The FTC has tended to think it will see those issues only “when we see problems on the sell-side, and that we can address them through the remedies that solve the sell-side problems”.
“That may not be right,” Hoffman said. “I think it’s an area that we need to look at.”
He emphasised that he has not prejudged whether a labour monopsony problem exists nor whether it would need remedies distinct from those used to solve merging companies’ increased market power as sellers. The FTC has “an information gap” because it has not specifically studied this area, he said.
Hoffman laid out a hypothetical case in which a labour monopsony might exist independent of any monopoly: two companies that face plenty of other competition in selling their product, but in a particular defined labour market, such as an island or isolated town, have manufacturing facilities that they will consolidate in a merger. There might be a plausible relevant market for the purchasing of labour in that community, he said.
“That would be a problem that would be completely missed by current analysis,” Hoffman said. He added that it might not really be a problem if employees can move or use their skills in other occupations.
Feinstein said this would be the “flip-side” of efficiency arguments, which companies make in defending their merger as procompetitive because it will reduce their costs. But Hoffman replied: “Efficiencies don’t necessarily mean the exercise of monopsony power”.
He distinguished between the efficiency of being able to bargain for a better price, and the monopsonist’s ability to restrict its purchasing of inputs. Hoffman said the latter may or may not result in lower output, which is a conventional metric under the consumer welfare standard for considering a merger to be anticompetitive.
“Historically, there’s been debate about whether you necessarily need to show the ultimate downstream effect in a monopsony case. I think it’s an interesting question,” Hoffman said.
“Again, these are not the things that we have typically focused on. I don’t have a view as to what the conclusion of looking at this will be. But this is an area that’s been raised a lot. I think it’s a legitimate point to raise. So it’s something we’re going to look at.”
GCR Live 6th Annual New York ended yesterday.