There’s been a lot happening on the anti-monopoly front this summer. Building Local Power Host Zach Freed is joined by ILSR’s Stacy Mitchell to discuss the most recent developments and how ILSR’s effort to break up monopolies is gaining traction. The two cover a range of topics:
- Stacy’s testimony in front of the House Judiciary Committee at a hearing about the power of big tech.
- The historic significance of the House Judiciary Committee’s investigation into big tech after decades of the federal government taking a hands off approach to antitrust law enforcement.
- The results of ILSR’s 2019 Independent Business Survey including the biggest challenges independent businesses face and recommendations for policy makers on fostering a more equitable economy.
- Walmart’s dominance of the U.S. grocery market and ILSR’s new map providing a visual illustration of Walmart’s market power.
“The fact that public policy largely favors big business and isn’t doing anything about concentration is a huge issue. That is the biggest barrier for independent businesses.”
|Hibba Meraay:||Hey, everyone, it’s Hibba, ILSR communications manager and I have Zach with me here.|
|Zach Freed:||Hi, everyone.|
|Hibba Meraay:||Hey, Zach. So, you did the interview this week interviewing Stacy Mitchell, who is a frequent host of this podcast. What’d you guys talk about?|
|Zach Freed:||Yeah, so, ILSR has been pretty busy these past couple of months. Stacy testified recently before the House Judiciary Committee about Amazon’s monopoly power. We also released our annual survey of independent businesses. This time, we surveyed over a thousand of them. We also released our Walmart report, which details Walmart’s dominance over the grocery market. We knew before that one out of every four grocery dollars is spent at Walmart. But our new report really digs into some new dimensions of Walmart’s power over this industry and really shows how Walmart’s power over the grocery market is greater than any other company before it.|
|Hibba Meraay:||Getting back to the hearings, I think what I found really interesting was how you and Stacy were talking about the historic significance of these hearings. Really, the federal government hasn’t been enforcing antitrust law in a few decades. And this is one of the first big developments that’s really trying to get back to that enforcement. I think that’s super significant. And also in watching the hearing myself, and you and Stacy talk about this, I noticed that the members of Congress were super well-informed and had really sharp questions for the big tech companies that were testifying, which is great to hear and also great because that’s not always how Congress is. So that was encouraging.|
|Zach Freed:||Yeah, that’s right. We really do have an important moment in time now that lawmakers and citizens can use to help our country reinvigorate its antitrust enforcement. It was really cool to be a part of that hearing.|
|Hibba Meraay:||Yeah. I think the thread of really, the three topics you discuss like the Walmart report, the independent business survey, and the hearing or that we have a real opportunity here to change the game if policymakers are smart about how they go about it. Yeah, there’s a lot of great recommendations in the episode and discussion. So, let’s dive in.|
|Zach Freed:||First question for you, Stacy, what was the purpose of this hearing?|
|Stacy Mitchell:||Yeah, so this hearing is really actually a small piece of a much bigger investigation. So the Antitrust Subcommittee, which is part of the Judiciary Committee and the House is undertaking really, a historic investigation into dominant tech companies. Congress used to conduct these kinds of investigations into different sectors of the economy on a regular basis. And often, they would produce reports and findings that would lead to maybe policy changes, beefing up our antitrust laws, or sometimes even litigation into cases that would break up companies or restructure markets. But Congress really hasn’t done anything like this in decades. We really put anti-monopoly on a back shelf. And the good news is that that is now being resurrected.
So, the Judiciary Committee is undertaking this months-long investigation into the power of big tech, really looking to build a comprehensive knowledge base about the size of these companies, what they’re doing, what the impacts are. And by big tech, I mean Amazon, Facebook, Google, Apple, these really dominant kind of gatekeepers in our economy. So this hearing was one part of this bigger process that we expect will lead to a big report and recommendations maybe as soon as the end of the year.
So the hearing had two parts. The first part was the four companies or representatives from the four companies were up there in front of the committee to answer questions. And then part two were a second panel of experts including me.
|Zach Freed:||Was there anything noteworthy that you noticed about the hearing itself?|
|Stacy Mitchell:||You know, I thought the most remarkable aspect of it was that many of the members of Congress on the committee were quite well-informed about the business models of these companies. The questions that they asked really illustrated that they knew a lot and were probing the right kinds of questions.
I think the other thing that was quite remarkable is that Amazon got a huge number of the questions. I mean, they had Facebook up there and with everything that’s been going on with Facebook, I thought there was a decent chance that the whole hearing would end up being about Facebook or maybe Google. But I think Amazon maybe got more questions than anyone else, which was really interesting to see.
The other thing that I thought was quite good about the hearing is that several members of Congress including Congressman Cicilline, who chairs this subcommittee and is really leading the charge on this, asked questions or made statements that connected the power of these big tech companies back to their districts. So like, “How does this matter to real people, real businesses? How is this affecting communities?” And I thought that was quite powerful and really useful to see that that’s how they’re thinking about this.
|Zach Freed:||Yeah, totally. I agree. So, the hearing was a part of the bigger investigation that’s going to take many months into the market power of big tech companies. What would you like to see the Judiciary Committee dig a little deeper into?|
|Stacy Mitchell:||You know, we’re obviously very much focused on Amazon in terms of our research and concerns. And I think one area of questioning that the committee members had and that was really a big focus of my testimony was around Amazon’s power as a gatekeeper and the fact that lots of other businesses now really depend on Amazon in order to reach the market. Amazon captures more than half of online shopping traffic in the U.S., which means if you make anything or sell anything, increasingly, you’ve got to be on Amazon’s platform if you want to reach customers. And of course, they also have a dominant share of cloud computing services. They’re increasingly the interface for all kinds of smart devices through Alexa, their voice assistant. So they have all of this kind of structural power in the economy as a piece of infrastructure that other companies need.
And a lot of the questions revolved around that. Some of the questions were about how Amazon uses data that it gathers from companies that rely on its platform to undermine them as competitors, to compete against them with a kind of built-in advantage. So, one of the things that I’m hoping that the committee’s investigation will uncover, and of course, they can request information from Amazon that is nonpublic information. They could even subpoena information from Amazon.
Some of the things that I’d like to see them bring to light are more details about the marketplace. You know, how many sellers are on it, what is the picture of all of these sellers, and how they’re doing? More information about how exactly Amazon uses the data that it gathers from these sellers, how its algorithms work, how does it decide who gets the Buy Box, that is, who gets to be the default seller on the platform. And then information about the pricing and terms that Amazon has for sellers. In order to be successful on Amazon’s platform, you really have to use fulfillment by Amazon. And we know that those fees have increased considerably in recent years. So actually documenting those cost changes, I think is important. Those are just like a few things around the marketplace that I’d love to see the committee look into.
All of those issues really point to the fact that there is a deep conflict of interest when you have a company that controls what other businesses need to access the market and then is also competing with those businesses and has a godlike view of everything that they’re doing. That’s just inherently problematic. So what I also hope that committee is going to do is release a strong report that makes some recommendations about the kind of policy change that we need to see. So, Zach, I was curious if you had any big takeaways from watching the hearing.
|Zach Freed:||My job before ILSR was as a congressional staffer. And one of the things that was part of my job was trying to educate members of Congress about antitrust law and particularly Amazon. I was also very struck by the fact that all of the members who spoke at the hearing seemed very well-versed in Amazon’s anti-competitive behavior. I was also really encouraged by the fact that everyone who spoke just about seemed pretty keen to take on Amazon directly and didn’t seem really afraid or inclined to tiptoe around the issue, which is a big change over even a year and a half ago. I think a lot of these companies enjoyed the ability to do whatever they wanted under the last couple of Congresses and presidential administrations. yeah, it was really good to see such hard-line questions and courage from all the members of the judiciary committee.|
|Stacy Mitchell:||Yeah. I think one of the other things that’s really interesting about this process in the committee is that it seems to be driving activity at the FTC and the DOJ as well. I mean, I think this focus from Congress on antitrust and the questions that they’re asking in terms of like, “Okay, why have the enforcement agencies allowed these tech companies to become so dominant and all along the way to continue to acquire other companies unimpeded? Is everybody at the FTC just asleep in their chairs?” I mean, that seems to be part of the question that Congress is raising with all of this.
And lo and behold, we see that the FTC has launched a task force around big tech. There are reports that they may be having an investigation underway about Amazon. The DOJ says it’s probing issues around big tech. You know, I’m not holding my breath that either of those agencies as they’re currently configured within this administration are going to come forward and really fundamentally address these issues. But nevertheless, we’re seeing some movement. And it’s sort of a sign that hopefully, Congress isn’t going to continue to allow them to not take responsibility for what their job is, what they’re charged with under U.S. law.
|Zach Freed:||Yeah. Like you said, I mean, this is really how the political process is supposed to work. I too am not holding my breath but I think you’re starting to see little changes happening, at least in the House. In the past, I think the bias was to defer to kind of the technocratic expertise of agencies
Like the FTC and DOJ and, but you’re starting to see Congress kind of start to really do its job and take its role very seriously in a way that it hasn’t before and, yeah, like you said, it’s causing momentum on the agency side as well.
|Stacy Mitchell:||Yeah. So we’ll see. I mean, obviously the tech companies are really gearing up. But I guess I’m glad that we actually have a fight on our hands, which really wasn’t true even just a couple of years ago, so that’s great news.|
|Zach Freed:||Yeah, totally. There’s a lot of focus on big tech’s monopoly power lately, but monopoly power permeates our entire economy. That’s one of the things that we noticed when we conducted our Annual Independent Business Survey. We asked over 1000 retailers, booksellers, furniture and office supply dealers, and other types of business owners about the challenges that their businesses face. We came away from the survey with a lot of really interesting information.
So, Stacy, can you tell me about the survey’s findings this year? What stuck out to you?
|Stacy Mitchell:||Yeah, I think one of the things that really struck me was that the survey found, on the one hand we saw a lot of evidence in the survey that independent business owners are incredibly nimble and competitive. They continue to find ways to survive, and yet they’re very much embattled, and when we asked them what their biggest challenges were, most of the things that they named, four out of five of the top things were issues that all have to do with concentrated power. I mean, among independent retailers, Amazon’s market power was ranked easily as the top threat to their business, 75% rated the danger posed by Amazon as significant or extremely significant.
Other top issues included the fact that their biggest competitors are often able to get lower prices from suppliers, that Walmart can strong arm a supplier into giving it special treatment that competing businesses aren’t able to get. That was a huge issue. We also saw issues around credit card fees. The fact that Visa and MasterCard dominate the market for processing credit cards and are able to really extract a sizeable share right off the top of independent businesses’ revenue.
So, over and over again in this survey, we were seeing that this issue of concentrated economic power and the fact that public policy largely favors big business and isn’t doing anything about concentration is a huge issue that that is the biggest barrier. In many cases, in the case of Amazon, for example, independent retailers ranked that as a bigger threat than government red tape, taxes, rising healthcare costs, a bunch of other things on that list that were much lower than Amazon’s market power.
|Zach Freed:||Who is this survey designed for? For a policymaker, a researcher, a journalist, what kind of information could I take away from the survey?|
|Stacy Mitchell:||It’s really all of the above. If you’re a journalist who’s covering the economy or business, there are a lot of insights that you can glean from this about how independent businesses are seeing the landscape and the particular challenges that they’re facing and the policy issues that they think are important. If you’re a policymaker, there’s lots that you can glean from this that is useful as we think about how to bring back a more entrepreneurial and competitive economy, create new opportunities for people to move into the middle class, how to bring broader prosperity to different regions of the country. Growing independent businesses is a great solution, but there are some real barriers and it’s up to policymakers, I think, to address some of those things.
For example, one of the things we found is that over 40% of businesses that were looking to start or grow were unable to secure the loans that they needed in order to be able to do that. We really have, I think, a broken financial system in that it can’t actually supply the capital that we need in the places that we need it in order for small local businesses to grow, to create jobs. It’s a huge economic problem and it’s part of the reason that so many communities are depressed and that we’re not getting the kind of quality jobs. People are really struggling out there. So that’s sort of just one example of a data point that I think is very informative for policymakers.
|Zach Freed:||Yeah. Policymakers do tend to hear a lot of bad faith arguments, I would call them, from people purporting to represent small businesses, and they’re really just sort of a Trojan horse for bigger corporations like Walmart.|
|Stacy Mitchell:||Yeah. You have the chamber of commerce out there purporting to speak for small business, but you look at the chamber, I mean almost all of their money comes from the biggest corporations. Their board, which is huge, it’s like a hundred people, is made up of Who’s Who’s list of giant corporations. I mean, they really use small business as kind of window dressing to kind of cover up their agenda.
This is a great survey for kind of breaking through that perception and talking about what independent business owners are really seeing. One of the great things that I think about this survey is we don’t only, we not only ask multiple choice questions and present that data, but we have several sections in the survey where we ask businesses just to talk about what they’re seeing. On the question of trying to get a loan, this is just an open-ended question, questions about Amazon and all of this, and in those comment boxes, we had hundreds of businesses who wrote in some cases multiple paragraphs describing their experiences.
Our former colleague, Marie Donahue, who analyzed the survey results, very carefully went through all of those comments and actually analyzed and pulled out other findings from them. This survey is really a great way for business owners to speak for themselves, and those comments yielded a lot of great data. We also include in the survey report some representative samples of some of those comments, which I think make it kind of a dynamic read on top of the usual graphs and the usual kinds of numeric data that came out of this.
|Zach Freed:||ILSR has been doing these surveys for more than 10 years now. Can you talk about the origins, like the genesis of this survey? How has it changed over the years and what kind of valuable information are we able to take from each survey?|
|Stacy Mitchell:||Yeah. We started this as a very small survey with just a few questions. Back then, it was limited to retailers. Now we survey all kinds of businesses, small businesses. But at the time we were just surveying independent retailers and we would do the survey in January. It was designed to be kind of a counterpoint to all the media reporting that would come out after the holidays about how the big chains had done, “Walmart sales through the roof,” or whatever the reporting was.
We felt like independent businesses were just completely ignored in all of that, and so we did a survey that initially asked them how they had done in the previous year, how they’d done over the holidays, like what they were seeing in their communities in terms of people’s support for local businesses. We kept it to just a handful of questions because we were certain that independent business owners, they’re really busy and we were, we didn’t know if they would even take the time to do a three-minute survey. But it turns out we got a huge response, and every year we ask more and more questions. We have lots and lots of business owners who are super eager to answer them, and, as I said, often writing many-paragraphs responses and that kind of thing, which I think as a sort of meta-finding of our experiences with the survey is that business owners are deeply concerned about what they’re seeing in the market and in the policy environment. And they are very eager to share their perspective on those things and to take the time to do that.
Over the years, the survey grew from just being retailers to being all kinds of businesses. We started asking more and more in-depth questions. We started probing these areas that we were particularly interested in. So we ask questions now about commercial rents. How hard is it to lease a space? Are you seeing your commercial rent rates rise faster than your sales? We ask a lot of detailed questions about access to capital. We asked businesses, have you needed a, have you sought a business loan in the last couple of years, and then tell us about your experience? Then we find all kinds of interesting patterns in that data, particularly that local banks really matter and that the big banks are not serving the small business market very well.
We’ve asked more and more questions about Amazon. As Amazon has become a force in the economy, we’ve been interested to find out not only what do brick-and-mortar retailers think about Amazon as a competitor, but increasingly those same brick-and-mortar retailers feel compelled to sell on Amazon’s platform. So what are they finding when they become sellers on the platform? So the survey has just grown, and every year we think, Oh, maybe we’re asking too many questions and we’re not going to get a response, but every year we just get a flood of responses.
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|Zach Freed:||Finally, I wanted to talk about our Walmart report. This was kind of a long time in the making, and we had some really interesting findings, particularly that Walmart controls 50% of the grocery market in one out of every 10 metropolitan areas and nearly one-third of all micropolitan areas in the US.
When we do reports, oftentimes it’ll start with like an inkling of an idea or a single question. Was there a research question that led you down the path of making this report?
|Stacy Mitchell:||Yeah, I mean I think our central research question was we knew that Walmart nationally is this giant behemoth in the food sector. Walmart nationally captures one out of every $4 that Americans spend on groceries, which is extraordinary. We’ve just never had a retailer with that kind of power in the food system in our history, and what it means is that Walmart can really dictate to suppliers, all of the companies that produce and process food, and ultimately, farmers are really at the mercy of Walmart because they are the primary buyer for our food. So we knew that having a big national market share, that only tells you so much. When it comes to actually shopping for groceries. What matters is what’s available locally, what is your local city have to offer in terms of grocery stores? And we knew that Walmart had a pretty significant market share, at least in some metro areas. So we wanted to know how big it was and also to be able to map it to provide a visual illustration of Walmart’s market power. Working with this data set, we were able to create this map showing all of the metropolitan and micropolitan regions of the country where Walmart has more than 50% of grocery sales and also those where it has more than 70% of the grocery market. So that’s over 200 communities in the U.S. that you can see on the map. And just to say a metropolitan area I think most people know is a sizeable city and its surrounding region.
It sort of makes up what you might call a commuting zone or an economically integrated region, so that’s a metropolitan area. A micropolitan area, many people are less familiar with, but that’s the same idea. It’s just that the central city is smaller. It’s between 10 and 50000 people. So it’s kind of like a smaller version of a metro area.
|Zach Freed:||So how did we get to this point? What policy decisions led us down the path to Walmart’s dominance over the grocery business?|
|Stacy Mitchell:||It’s pretty striking to think about these places, in 38 regions where Walmart has 70% or more of market share. If you actually think about what that means on the ground in those places. For most people you’re not going to … you can’t drive very far to get your groceries. I mean you could, but most people want to be able to get their groceries multiple times a week and to do it fairly close to home.
And so if you live in a metro region where 70% of the sales are going to Walmart, Walmart has multiple stores. Most people in that region are probably going to be living in a neighborhood where Walmart really is in a reasonable sense, their only option unless they want to drive across town. It is truly kind of monopolizing these grocery markets.
How we got here is that beginning in the 1980s, we chipped away at antitrust enforcement and we began to allow companies to engage in practices that would have drawn antitrust scrutiny, just a few years before. Walmart is an incredible beneficiary of that change. It started out in Bentonville, Arkansas and started growing within its region in the 1960s and seventies and then in the 1980s. Walmart really was able to sort of explode and grow across the country into the eighties, nineties and two thousands and it benefited enormously from the fact that at exactly that moment, we made these dramatic changes in how we enforce our antitrust laws.
So to give you just a couple of examples, one of the changes is that we made it essentially impossible to bring a case for what’s known as predatory pricing. So predatory pricing is technically illegal, but the courts have set this bar for proving it so high that effectively you can get away with it. And what predatory pricing means is when a company comes into a market and they sell goods below their own costs, they lose money in order to drive other competitors out. And this has been a consistent practice of Walmarts all the way along. They come into these communities, it would sell groceries or health and beauty items below cost. You would have local grocers, local pharmacies that … they had to pay their bills at the end of the month. They couldn’t operate in the red the way that Walmart could. And they would eventually go out of business and then Walmart would raise it’s prices.
We saw this across the country. This was a thing that Walmart consistently did, but we no longer prosecute that. So Walmart got away with it. One of the other big changes was we have this law on the books called the Robinson-Patman Act. It dates from the 1930s and it was a law that was enacted very much to deal with the power of big retailers. It was enacted in response to an earlier grocery store chain called A&P, the Great Atlantic and Pacific Tea Company, A&P, which was this dominant grocer back in the 1920s and thirties, never as big as Walmart is today, I should say. In part because as it began to grow and to dominate the grocery industry, Congress and the Enforcement Agency stepped in and Congress passed this law, Robinson-Patman Act that says, if you’re a big retailer, you cannot force suppliers to give you discounts that are not available to other competitors.
So what you can imagine sort of in the grocery situation, imagine that you’re a supplier of some type of food product. Walmart is this giant customer and they come to you and say, “You know, we want a discount that’s bigger than any of our competitors get, for no reason other than we’re huge and you can’t say no to us because we make up a quarter of your sales. And so we have a lot of power to make you do what we want.”
And the result of that is that Walmart gets that discount and then the supplier has to make up that money somewhere else. And it often means they raise costs on the independent grocers. So it creates an incredibly unlevel playing field. Not because anybody is a better competitor, but simply because Walmart has the power. So Robinson-Patman Act, technically again, that’s illegal, but we really shelved that law and no longer enforce it. And so those are two of the biggest antitrust changes that allowed Walmart to grow to this kind of dominance.
|Zach Freed:||Then the question I have is what can we do as ordinary citizens? How can we take the power back from Walmart and from companies like Walmart.|
|Stacy Mitchell:||That’s exactly the question. And I should say in our report, not only do we have this beautiful map that I think really illustrates the point that we’re trying to make and we talked some about this history and really situate how Walmart got to be this powerful. And we also talk about the consequences, not just for consumers but also for farmers and food workers, competing independent grocers and the like. And then we outline a set of recommendations. One of those is that we need to vigorously enforce our antitrust laws. I mean, we need to recover these laws that are designed to create a fair playing field and we need to to bring those back.
A lot of the talk these days about how to reform antitrust policy is around mergers. Having a stricter approach to merger reviews. Walmart didn’t get to be this huge because of buying other companies. It just got to be this huge by engaging in predatory practices. So Walmart’s a good example of why we actually need to enforce those laws. And it’s not just about about merger reviews, it’s about a bigger set of policies.
The second recommendation is we think that the federal trade commission should review these 203 markets where Walmart has more than 50% of grocery sales and wherever it’s feasible, they should force divestitures. That is, they should force Walmart to sell stores to competitors in order to break up their market share in those markets. And it’s worth noting that this is something that’s not unusual in the context of mergers.
And in fact, in 2015, the FTC was reviewing a merger between two big supermarket chains, Albertsons and Safeway. That merger I think should not have been approved at all. But the FTC did approve it, but they did have these huge concerns about these local markets in which the combined grocery store would have a lot of market share and where the number of “meaningful competitors” would fall. And so they required that some of those stores be sold off in order to approve the merger. So what I’m saying with all of that is the FTC has basically provided the logic for why they should go in and do this in the case of of Walmart.
And then the last thing is that in addition to checking Walmart’s power, we also need to support the growth of independent grocers. We know that one of the biggest challenges for independent grocers that want to expand or open a second location or new grocers starting out, is access to capital. It’s really hard as an independent business to get approved for a loan. It’s especially hard if you want to go into a lower income community or into an underserved rural area, exactly the places where we really need new grocery stores and so we make a number of recommendations in the report for how to expand access to capital for independent grocers.
|Zach Freed:||Thank you very much for coming on the podcast Stacy, and we’ll talk to you soon.|
|Stacy Mitchell:||Thanks Zach. It’s been fun.|
|Zach Freed:||And thank all of you for tuning into this episode of the Building Local Power Podcast from the Institute For Local Self- Reliance. You can find all the links to what we discussed today, including the independent business survey and Walmart report at ILSR.org on the show page for this episode. That’s ILSR.org. While you’re there, you can sign up for one of our many newsletters and connect with us on social media.
Finally, you can help us with a gift that helps produce this very podcast and produces original research on the way that monopolies are impacting our economy. Once again, please help us out by rating this podcast and sharing it with your friends on iTunes or wherever you find our podcasts.
This show is produced by Lisa Gonzalez, Hibba Meraay, and myself, Zach Freed. Our music is Funk Interlude by Dysfunctional. For the Institute for Local Self-Reliance, I am Zach Freed and I hope you join us again in two weeks for the next episode of Building Local Power. Thanks all.
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